Accelerating Indonesia’s digital economy: Assigning the 700 MHz band to mobile broadband

September 2018

Copyright © 2018 GSMA ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

The GSMA represents the interests of mobile operators GSMA Intelligence is the definitive source of global mobile worldwide, uniting more than 750 operators with over 350 operator data, analysis and forecasts, and publisher of companies in the broader mobile ecosystem, including authoritative industry reports and research. Our data covers every handset and device makers, software companies, equipment operator group, network and MVNO in every country worldwide providers and internet companies, as well as organisations in – from Afghanistan to Zimbabwe. It is the most accurate and adjacent industry sectors. The GSMA also produces industry- complete set of industry metrics available, comprising tens leading events such as Mobile World Congress, Mobile World of millions of individual data points, updated daily. GSMA Congress Shanghai, Mobile World Congress Americas and the Intelligence is relied on by leading operators, vendors, regulators, Mobile 360 Series of conferences. financial institutions and third-party industry players, to support strategic decision-making and long-term investment planning. For more information, please visit the GSMA corporate The data is used as an industry reference point and is frequently website at www.gsma.com. cited by the media and by the industry itself. Our team of analysts Follow the GSMA on Twitter: @GSMA. and experts produce regular thought-leading research reports across a range of industry topics.

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Authors: James Robinson, Senior Analyst Mayuran Sivakumaran, Senior Economist ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Contents

Ministerial foreword 2 1. Executive summary 4 2. Indonesia: the emerging digital economy giant 6 2.1 Mobile market evolution 7 2.2 Trends in media content delivery platforms 13 2.3 Digital innovation 14 3. How mobile broadband can accelerate the digital economy 18 3.1 Digital citizenship 18 3.2 Health 19 3.3 Education 20 3.4 Smart cities and the Internet of Things 21 3.5 Consumer base growth increasing the addressable market 22 4. The mobile industry’s role in achieving the Sustainable Development Goals 24 4.1 Mobile addressing social challenges 24 5. The importance of spectrum for mobile broadband adoption 26 5.1 The need for spectrum 26 5.2 Releasing the digital dividend in Indonesia 29 5.3 Ešective spectrum pricing 30 5.4 Benefits of a long-term spectrum roadmap 31 6. Economic benefits of assigning 700 MHz to mobile broadband 32 6.1 There will be a capacity constraint with the current provision of spectrum 33 6.2 $11 billion in additional economic benefits for Indonesia 34 6.3 The benefits of 700 MHz can be realised under certain conditions 36 7. Other factors to support the development of the digital economy 38 7.1 Network sharing can lower risks and costs of infrastructure deployment 38 7.2 Market consolidation to maintain healthy industry economics 39 7.3 Other regulatory obligations to support the digital economy 41 7.4 Enhancing connectivity and inclusion through the appropriate tax system 42 7.5 Identity as a foundational element of a digital economy 43 7.6 A forward-looking regulatory environment for the data economy 44 8. Appendix 46 8.1 Methodology for the estimation of benefits of assigning 700 MHz to mobile broadband 46

1 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Ministerial foreword

2 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

High-speed connectivity is the basic building block of a digital economy. The digital economy leverages technology developments of the last 30 years to allow Indonesians to be part of the largest digital economy in South-East Asia and access government, e-commerce, education and information services and communicate with fellow Indonesians or across the world. In a country of over 17,000 islands and more than 260 million people, availability of spectrum is critical to ensuring connectivity is available across the nation, providing all Indonesians with reliable and fast access.

Indonesia’s digital economy is demonstrating its world-leading This Indonesia report highlights the key benefits Indonesia can capability, attracting billions in investments for digital ventures. It expect from determining a plan for the Digital Dividend. Indonesia is critical that Indonesia is at the forefront of spectrum policy and is emerging as the digital economy powerhouse of South-East Asia allocation to ensure the digital economy continues to grow and and the Digital Dividend creates an opportunity for all Indonesians achieve its potential for financial inclusion, economic contribution, to enjoy high-speed connectivity in the most remote areas, helping digital citizenship and social equality. to accelerate participation in our nation’s prosperity and economic growth. 700 MHz band spectrum, generally described as the Digital Dividend, is a core resource for high-speed broadband globally, Rudiantara, delivering immediate GDP impact as the spectrum is reallocated Minister of Communication and Informatics of the from analogue TV to broadband services. Republic of Indonesia

Securing agreement for a spectrum strategy creates the foundation for the Indonesian government to achieve its vision for the 700 MHz band and step forward confidently and also build spectrum policy and plans to ensure Indonesia’s digital economy accelerates as further technology developments including 5G will provide a platform for innovation and economic growth for all Indonesians.

3 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

1. Executive Summary

4 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Since the start of the century, the mobile sector in Indonesia has experienced years of growth and development. Several operators have launched 3G services, with each expanding coverage to much of the country. Some market restructuring has intensified competition and kept prices relatively low – though state-owned Telkomsel continues to have a market share advantage over its rivals. 4G take-up is beginning to increase, albeit later than some neighbouring countries, and smartphone adoption is rising in both urban and rural areas. Combined with an expanding middle class and a tech-savvy youth population, this strongly positions Indonesia to become a digital economy powerhouse in South-East Asia.

Moving forward on the digitisation journey Policymakers should also consider rules to facilitate network For Indonesia to realise its full potential, the mobile industry must sharing, which could boost high-speed mobile connectivity by secure access to vital spectrum bands. Internet access remains lowering the costs and risks to deploying infrastructure, particularly a key barrier for citizens’ full participation in the country’s digital in remote or topographically challenging areas. In addition, the society. While 3G (at 900 MHz) has been successful in extending appropriate tax regime needs to be in place so that while operators basic mobile broadband to the unconnected, the technology contribute a fair amount to government tax revenue, the burden will not be able to cope with the significant tra£c growth does not become disproportionate. Such measures would help expected over the next 10 years. Mobile network operators are establish a policy environment that is conducive to operators predominantly using 1800 MHz spectrum for 4G rollout, but making the considerable investments needed to take Indonesia’s allocating the 700 MHz band quickly and in su£cient quantity digitisation journey forward. would support their ešorts to expand coverage, despite the geographical challenges, and help reduce the prevailing digital divide.

Assigning 700 MHz to mobile broadband would deliver economic benefits of $11 billion (IDR161 trillion) to the Indonesian economy over the period 2020–2030, equivalent to an incremental 1% of GDP. GSMA Intelligence

5 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

2. Indonesia: the emerging digital economy giant

FIGURE 1: INDONESIA: KEY FACTS1

GENERAL ECONOMY

POPULATION 3 264m POPULATION DENSITY2 GDP: $1.02 TRILLION POPULATION GROWTH

OFFICIAL LANGUAGE: GDP GROWTH INDONESIAN 4.9% 6.2% 5.1% (2017) 2000 2010 2017 GDP PER CAPITA $3,8474

PEOPLE

URBANISATION GENDER SPLIT (2017) AGE RANGES 42.0% 49.9% 55.2% 0-14 2000 2010 2017 30.7% 29.0% 27.4% LABOUR FORCE PARTICIPATION (2017)5 50.3% 49.7% 2000 2010 2017 81.8% 50.7% 66.3% MALE FEMALE 15-64 MALE FEMALE TOTAL UNEMPLOYMENT7 64.6% 66.2% 67.3% 2000 2010 2017 LITERACY (2016)6 65 OR OLDER 97.2% 93.6% 95.4% 4.7% 4.8% 5.3% 6.1% 5.6% 4.3% 2000 2010 2017 MALE FEMALE TOTAL 2000 2010 2017

Source: World Bank

1. Data from the World Bank: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators# 2. People per square kilometre of land area. 3. Current US$. 4. Current US$. 5. People aged 15 and above. Modeled International Labour Organization (ILO) estimate. 6. People aged 15 and above. 7. Modeled ILO estimate.

6 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

2.1 Mobile market evolution

FIGURE 2: MILESTONES OF THE INDONESIAN MOBILE MARKET

1994/95 Partial privatisation of Telkom and Indosat. 1994

2000 2000 Telecommunications Law (1999) comes into eŒect.

2002 Market penetration stands at 5%. 2002

2005 2005 Indosat and Telkomsel trial 3G services.

2006 3G licences awarded. 2006 Telkomsel launches commercial 3G service. 2007 Hutchison and Smart Telecom enter mobile market. 2007 Government caps foreign direct investment (FDI) in the telecoms sector. 2008 NTS relaunches GSM services under Axis brand. 2008 Market penetration reaches 50% of population. 2010 Mobile-8 Telecom and Smart merge brands under 2010 new name, SmartFren. 200 million connections nationwide. 2012 Indosat issued with a 3G licence in 900 MHz band. 2012 Market penetration reaches 100%.

2013 2013 Telkomsel and XL Axiata win 1800 MHz spectrum. 300 million connections nationwide.

2014 XL Axiata acquisition of Axis receives regulatory clearance 2014 by competition authority KPPU. 2015 Five largest mobile operators launch LTE services. 2015 Indosat becomes Indosat Ooredoo. SmartFren acquires Esia. 2017 2.1 and 2.3 GHz spectrum auctions. 2017 400 million connections nationwide. Market penetration reaches 150%. 2018 MCIT blocks millions of unregistered prepaid SIM cards. 2018 Telkomsel and XL trial 5G during the Asian Games.

Source: GSMA Intelligence

7 2010 2015 Mobile-8 Telecom Five largest mobile 2006 and Smart merge 2013 operators launch 3G licences brands under new Telkomsel and XL LTE services. 1994/95 2002 awarded. name, SmartFren. Axiata win 1800 MHz Indosat becomes Partial privatisation Market penetration Telkomsel launches 200 million spectrum. 300 Indosat Ooredoo. of Telkom and stands at 5%. commercial 3G connections million connections SmartFren acquires Indosat. service. nationwide. nationwide. Esia.

1994 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2018

2008 2014 2018 2000 2005 NTS relaunches GSM XL Axiata acquisition of MCIT blocks millions of Telecommunications Indosat and services under Axis brand. Axis receives regulatory unregistered prepaid Law (1999) comes Telkomsel trial 3G Market penetration reaches clearance by competition SIM cards. Telkomsel into e’ect. services. 50% of population. authority KPPU. and XL trial 5G during the Asian Games.

2007 2012 2017 Hutchison and Smart Telecom enter Indosat issued with a 3G licence 2.1 and 2.3 GHz spectrum ACCELERATING INDONESIA’S DIGITAL ECONOMY:mobile market. ASSIGNING Government THE 700caps MHZ BAND TOin 900 MOBILE MHz BROADBANDband. Market auctions. 400 million connections foreign direct investment (FDI) in the penetration reaches 100%. nationwide. Market penetration telecoms sector. reaches 150%.

FIGURE 3: INDONESIA: MOBILE MARKET SNAPSHOT AND FORECASTS

UNIQUE SUBSCRIBERS UNIQUE MOBILE INTERNET TOTAL CONNECTIONS (EXCLUDING SUBSCRIBERS LICENSED CELLULAR IOT)

2017 2025 2017 2025 2017 2025 194m 220m 102m 185m 439m 488m 73% 77% 39% 65% penetration penetration penetration penetration rate 1.6% rate rate 7.7% rate 1.2%

CAGR 2017-25 CAGR 2017-25 CAGR 2017-25

MOBILE BROADBAND CONNECTIONS SMARTPHONE CONNECTIONS CONNECTIONS BY (EXCLUDING LICENSED CELLULAR IOT) TECHNOLOGY

2017 2025 2017 2025 2017 2025 233m 488m 270m 396m 2G 205m 3G 121m 99m 113m 361m 8.6% 4.4% 4G

CAGR 2017-25 CAGR 2017-25 5G 29m

Source: GSMA Intelligence

Years of subscriber growth have created a huge mobile market Indonesia will therefore be one of the biggest single contributors At the end of 2017, there were 194 million unique subscribers to global mobile subscriber growth during the period to 2025, in Indonesia, making it the third largest mobile market in Asia with more than 3% of global additions. Pacific and fourth largest in the world.8 With subscribers owning on average 2.3 SIM cards, there were 439 million connections at However, there remains a considerable digital divide between year-end 2017, representing a market penetration of 165%. urban and rural citizens. Nearly 45% of people live in rural areas, which is considerably higher than more developed Asia Pacific The exponential growth in uptake of mobile services since the countries, while the archipelagic nature of the country can make beginning of the century has resulted in unique subscriber expanding coverage costly and/or di£cult. GSMA research penetration levels in Indonesia rising from less than 3% in 2001 suggests that of the population that does not have access to a to just over 73% at the end of 2017. While growth has slowed in mobile phone in Indonesia, 97% is located in rural areas.9 The the past few years, penetration is still forecast to reach around number of unconnected individuals presents a huge opportunity 77% by the end of 2025, equivalent to 220 million individuals. for subscriber growth over the next decade.

8. By number of unique subscribers – unique users who have subscribed to mobile services at the end of the period, excluding machine to machine (M2M). Subscribers di–er from connections such that a unique user can have multiple connections. 9. Internal 2016 GSMA report.

8 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

FIGURE 4: MOBILE SUBSCRIBER DYNAMICS IN INDONESIA10

100%

90% 77% 80% 70% 60% 50% 65% 40% 30% 20% 10% 0% 2011 2017 2012 2021 2014 2013 2001 2010 2015 2018 2019 2016 2007 2022 2024 2023 2002 2020 2025 2004 2003 2000 2005 2008 2009 2006 Subscriber penetration Mobile internet subscriber penetration

Source: GSMA Intelligence

Telkomsel

Indosat

Tri

XL 10. No data available for mobile internet subscriber penetration before 2010. Merger approved in 2014 Axis 9

0% 10% 20% 30% 40% 50%

2010 H1 2018

396m 400

350

300 350m 250

Millions 200

150

100

50

0 2009 2011 2013 2015 2017 2019 2021 2023 2025 Indonesia US ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Despite in-market mergers, Telkomsel remains the largest operators (MVNOs) into the market; however, perhaps due to mobile operator unfavourable commercial conditions (relatively low average The Indonesia mobile market is dominated by five licensed revenue per user and predominance of prepaid connections) or network100% operators: Telkomsel, Indosat Ooredoo, XL Axiata, Tri regulatory hurdles (no clearly defined rules for licence provision), and SmartFren. Telkomsel is majority state-owned, while the an MVNO has yet to launch.13 90% Indonesian government also retains a minority stake of around 77% 14% in80% Indosat. As of H1 2018, Telkomsel held a 46% share of total The Indonesian mobile market has experienced a few instances connections,70% followed by Indosat (23%), Tri (15%), XL (13%) and of in-country consolidation in recent years, one example being SmartFren60% (2%). Local 4G (and former WiMAX) providers BOLT! the merger of Mobile-8, which used the name Fren, and Smart and hinet50% are also present in the country, accounting for around to create SmartFren. A strategically important consolidation65% 1% of the market between them. was XL’s acquisition of a 95% stake in smaller rival Axis for $865 40% million (IDR12.4 trillion) on a cash- and debt-free basis. The deal In addition30% to these players, Net1, the brandname of Sampoerna received regulatory approval in 2014 on the condition that XL Telekomunikasi20% Indonesia (STI),11 operates an LTE network conceded a number of blocks of 2.1 GHz spectrum. Meanwhile, using10% an allocation of 450 MHz spectrum. It holds a nationwide Bakrie Telecom, which traded using the Esia name, was licence but is currently only present in some of the country’s purchased by SmartFren in 2015. This provided SmartFren with 0% most populated islands, such as Java and Sumatra. The Ministry additional customers and access to spectrum at 850 MHz, while 2011 2017 2012 2021 2014 2013 2001 2010 2015 2018 2019 2016 2007 2022 2024 2023 2002 2020 2025 2004 2003 2000 2005 2008 2009 2006 of Communication and Information Technology (MCIT)12 has Bakrie obtained 6% of the overall merged entity. Subscriber penetration considered the possibility of introducing mobile virtual network Mobile internet subscriber penetration

FIGURE 5: SHARE OF CONNECTIONS IN INDONESIA BY MOBILE OPERATOR14

Telkomsel

Indosat

Tri

XL Merger approved in 2014 Axis

0% 10% 20% 30% 40% 50%

2010 H1 2018

Source: GSMA Intelligence

396m 400

350

300 350m 250

Millions 200

150

100

50

11. Net1 was known as Ceria until Q2 2017 when it rebranded to reflect its migration from CDMA to an LTE-based service. 12. Known locally0 as Kominfo (Kementerian Komunikasi Dan Informatika) 13. It has been reported that Circles.Life2009 and MyRepublic will become 2011 MVNOs in Indonesia 2013during 2018. 2015 2017 2019 2021 2023 2025 14. Including licensed cellular IoT. Indonesia US

10 100%

90% 77% 80% 70% 60% 50% 65% 40% 30% 20% 10% 0% 2011 2017 2012 2021 2014 2013 2001 2010 2015 2018 2019 2016 2007 2022 2024 2023 2002 2020 2025 2004 2003 2000 2005 2008 2009 2006 Subscriber penetration Mobile internet subscriber penetration

ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Telkomsel

Indosat Indonesia will soon become the third largest smartphone Smartphones, such as those from Indonesian brand Advan, marketTri globally are available for less than $100 (IDR1.4 million). It is estimated While the likes of Australia, Macau, Singapore and South Korea that 65% of all handsets sold in the country are manufactured accountXL for four of the top seven nations worldwide in terms of domestically following the introduction of “Made in Indonesia” smartphone adoption, Indonesia, along with China and India, hasMerger approvedrules in 2017.15 Adoption is expected to reach almost 90% by been responsible for driving growth in take-up across Asia Pacific. in 20142025 (396 million connections), up from 65% as of mid-2018. Axis Indonesia alone added almost 75 million smartphone connections The number of smartphone connections in Indonesia is fast in 2017, while the total for the three countries combined was 348 approaching that of the US and is expected to overtake it in 2018, 0% 10% 20% 30% 40% 50% million, accounting for 55% of new connections globally. making it the world’s third largest smartphone market.

2010 H1 2018 FIGURE 6: SMARTPHONE CONNECTIONS IN INDONESIA AND THE US

396m 400

350

300 350m 250

Millions 200

150

100

50

0 2009 2011 2013 2015 2017 2019 2021 2023 2025 Indonesia US

Source: GSMA Intelligence

According to the GSMA’s 2018 Global Mobile Engagement Index Coverage of 4G is moving in the right direction but (GMEI), Indonesia ranks 35th out of 50 countries surveyed adoption lags in terms of consumers’ engagement with mobile services.16 Indonesia is currently in a transitional phase away from a basic Indonesia has a relatively young population and many keen voice and SMS-based mobile market towards a more advanced social media users.17 Use of IP messaging is rising and is now digital society. The country consists overwhelmingly of prepaid used more frequently than SMS by over half the population. subscribers, reflected in a monthly ARPU by connection of just However, the index score suggests a lower level of engagement $1.52 (IDR21,900) – well below the global and regional averages. with paying utility bills online via their smartphones or with 2G and 3G combined represented 69% of total connections as mobile applications to pay for goods. The 2018 score of 2.1 is an of mid-2018. Despite being considered a laggard 4G market, improvement on the previous year when Indonesia scored 1.4,18 Indonesia (like Malaysia, Myanmar, the Philippines and India) is and should improve further with greater smartphone adoption now beginning to see an accelerating migration to high-speed and wider coverage of high-speed mobile broadband. mobile broadband. This is driven for the most part by ongoing network investment and spectrum refarming by operators locked in fierce competition, and by a growing consumer appetite for higher speed mobile services.

15. “Going local: How Apple got back into Indonesia’s smartphone game”, South China Morning Post, April 2017 16. Consumer insights: Evaluating mobile engagement, GSMA, 2018 17. 130 million (23% growth on the previous year). See Digital in 2018: Southeast Asia, We Are Social, 2018 18. GMEI 2017, GSMA, 2017

11 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

FIGURE 7: FORECAST OF MOBILE CONNECTIONS IN INDONESIA BY TECHNOLOGY GENERATION19

100%

90%

80%

70%

60%

50%

40%

Percentage of connections 30%

20%

10%

0% 2017 2018 2019 2020 2021 2022 2023 2024 2025

2G 3G 4G 5G

Source: GSMA Intelligence

4G isSmartFren not quite the dominant technology in Indonesia, and we (74% of total connections) by that point. Looking ahead, while do not expect the 3G lifecycle to reach maturity for several commercial deployments of 5G services are planned in China, years.Tri However, against a backdrop of favourable spectrum and Japan and South Korea before the end of 2020, the market for investment policies from the government, 4G will continue to this next-generation technology is likely to be at a fairly nascent rise to 2025, accounting for an estimated 361 million connections stage in Indonesia five years on. XL

Indosat

Telkomsel

0 25 50 75 100 125 150 MHz

850 MHz 900 MHz 1800 MHz 2.1 GHz 2.3 GHz

800

700

600

500

400 MHz 300

200

100

0

Japan India Singapore Malaysia Australia Thailand Indonesia Vietnam Pakistan 19. Excluding licensed cellularSouth KoreaIoT. New Zealand Philippines Bangladesh

Sub-1 GHz Above 1 GHz 12 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

2.2 Trends in media content delivery platforms

With increasing mobile broadband coverage and growing two parties agreed a partnership. As Indonesian consumers also adoption of smartphones, delivery of content over mobile have strong preferences for local-language content, OTT market networks is rising in Indonesia. Findings from the GSMA’s 2017 growth will also materialise as a consequence of domestic players Consumer Survey indicate that 20% of phone owners in Indonesia such as iFlix and Hooq, which ošer more ašordable alternatives consume free online video services, such as YouTube, on their to Netflix. For mobile operators, this presents an opportunity device at least once per month, and a further 13% do so albeit to boost content ošerings, unveil new pricing schemes and infrequently (less than once a month). These figures increase to potentially gain new customers. 45% and 29%, respectively, for smartphone owners. In addition, 30% of those aged 18–34 years old watch free online video Meanwhile, average daily use of the internet via a mobile phone content every month, while a further 17% do so less frequently. (3 hours 55 minutes) and the use of social media via any device (3 hours 16 minutes) both now eclipse daily TV viewing time (2 While DVDs of the latest movies and TV series are available hours 23 minutes).22 TV viewership has been in particular decline across Indonesia, and typically at ašordable prices, the over- among the younger demographic, who increasingly rely on the-top (OTT) video market is still expected to grow to be worth press websites and social media platforms for news content, and $40 million (IDR576 billion) in 2019, with a forecast subscriber stream non-linear programming. As advertising consumption and base of nearly 10 million.20 This growth will be partly driven by revenues shift away from traditional broadcasting and into digital the likes of Netflix, which was blocked by Telkom in 2016 on channels (such as social networks), it is important the country the grounds that the streaming service displayed violence and maintains the pace of digitisation and that spectrum policy adult content.21 This was reversed the following year, after the supports the demands on and needs of the mobile industry.

20. “Asia Pacific OTT market leaping ahead”, Muvi, November 2017 21. “Netflix blocked by Indonesia in censorship row”, bbc.co.uk, January 2016 22. Digital in 2017: Southeast Asia, We Are Social, 2017

13 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

2.3 Digital innovation

The combination of a large (young) population, expanding 4G brand, covering an initial 12 districts in Ho Chi Minh City with on- coverage, and relatively ašordable mobile services and handsets demand motorbikes for personal transport and express courier means Indonesia has the scale and market characteristics to services. A Thailand launch under the GET name is slated for stimulate sources of innovation. According to the MCIT, the September 2018, while Go-Jek hopes to go live in the Philippines country now has four unicorn start-ups,23 which should become by the end of the year and in Singapore soon after. five by 2019.24 Go-Jek is Indonesia’s first unicorn and, according to a recent survey, the country’s most popular ride-sharing or Go-Jek’s expansion is likely to be limited to vehicle services at hailing application.25 Launched in 2016, Go-Jek’s Go-Car and its first and could be followed by food delivery service, Go-Food, eponymous motorbike service have quickly become popular which then provides a bridge to consumers using Go-Pay, its and are competing successfully with Grab and Uber – Grab has mobile payment system (the largest in Indonesia). According agreed to acquire Uber’s South-East Asian assets. Go-Jek’s Chief to reports, the prevailing market conditions in Go-Jek’s target Marketing O£cer also claims that the company has helped lower countries show that Grab has not established itself as a clear Indonesia’s unemployment rate by 0.5 percentage points in 2016 leader so there is scope for disruption, particularly as Uber ceases and put $1 billion (IDR14.4 trillion) back into the economy by its operating.27 Competition between the two firms will be intense drivers and merchants.26 going forward; Grab has also diversified into adjacent markets and tailors its ošerings by country – for example, tuk-tuks are Go-Jek has announced plans to spend $500 million (IDR7.2 available for hire in Cambodia, as are rickshaws in the Philippines. trillion) expanding into other South-East Asian countries, while However, the Go-Jek app, which serves as a one-stop shop for 16 investors have ošered a further $1 billion (IDR14.4 trillion) to fuel services, including ticketing and home cleaning, could result in a growth. In Vietnam, the firm has launched under the Go-Viet greater degree of user interaction and loyalty.

TABLE 1: OTHER DIGITAL START-UPS IN INDONESIA

Mata Rakyat A mobile app developed by InTouch, which translates as ‘eye of the people’, Mata Rakyat provides the verification of vote counts by coordinating reporting mechanisms from witnesses across thousands of polling stations.

Ralali A business-to-business (B2B) firm that connects buyers and vendors by providing a marketplace for industrial supplies and maintenance, repair and operational equipment.

Tokopedia Established in 2009, Tokopedia is one of the country’s largest e-commerce marketplaces. Its platform is used by individuals and businesses to manage their own online stores, and facilitates millions of product sales every month.

Traveloka An online travel agency that provides airline ticketing and hotel booking services. Traveloka was established in 2012 with a focus on business travel in Indonesia and across South-East Asia.

Source: GSMA Intelligence

23. A privately held start-up with a valuation of over $1 billion (IDR14.4 trillion). 24. “Indonesia expects to have more than 5 unicorns by 2019: minister”, Reuters, February 2018 25. “Go-Jek most popular ride-hailing app: Survey”, The Jakarta Post, February 2018 26. “In Singapore, a preview of how Grab and Go-Jek will likely face o– across Southeast Asia” South China Morning Post, June 2018 27. “Uber’s south-east Asia exit can be Go-Jek’s gain”, FT, April 2018

14 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

An increasing number of mobile operators have sought to invest Tech hubs are also providing start-ups with business support in or partner with start-ups to accelerate innovation and protect and services to help them scale, usually by facilitating access to themselves from disruption. Telkom’s venture arm, Metra Digital critical resources such as skills, funding, technology, networking Innovation (MDI) Ventures is a $200 million (IDR2.9 trillion) and digital tools. GSMA research identifies 565 hubs active in fund with a focus on five major verticals: enterprise solutions, emerging Asia Pacific markets, of which over 50 are in Indonesia fintech, adtech, IoT and smart city solutions. Its 2016 investments (see Figure 8).32 Jakarta is home to 27. The Telkom-backed Indigo included ‘seven figures’28 for Red Dot (an online payments Incubator and Indosat Ooredoo’s IdeaBox are among the leading company based in Singapore) and $25 million (IDR360 billion) hubs in the country. In February 2017, IdeaBox announced three for 10 Indonesian start-ups, while in 2017 MDI joined a $3.2 million winners of its start-up boot camp: Andalin, Ayo Slide and Sevva. (IDR46 billion) financing round for aerospace company Loft Each received $50,000 (IDR720 million) of early-stage funding, Orbital.29 The government is keen to support such partnerships; mentoring, access to an investor network and a dedicated facility Indonesia’s “1000 Start-Up Digital National Movement” aims to for the duration of the 120-day programme.33 foster 1,000 digital start-ups worth $10 billion (IDR142 trillion) by 2020.30 In early 2018, a new regulation halved a 1% tax on SMEs with an annual turnover of less than IDR4.8 billion ($339,000).31

28. Amount undisclosed. 29. “Indonesia: Telkom’s MDI Ventures joins $3.2m round in US startup Loft Orbital”, Deal street Asia, November 2017 30. “KOMINFO Indonesia working on a number of initiatives to boost digital start-up ecosystem and support SMEs”, OpenGov, May 2017 31. “Govt finalizes regulation on e-commerce”, republika.co.id, February 2018 32. “Asia Pacific: a look at the 565 active tech hubs of the region’s emerging economies”, GSMA, March 2018 33. “Breaking tradition, Indonesia’s Ideabox announces 3 startups to join its latest batch”, E27, February 2017

15 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

FIGURE 8: NUMBER OF TECH HUBS IN ASIA PACIFIC, 2018

NEPAL

MYANMAR

VIETNAM PHILIPPINES PAKISTAN BANGLADESH

CAMBODIA THAILAND INDIA

SRI LANKA

MALAYSIA INDONESIA Source: GSMA Ecosystem Accelerator

16 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

17 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

3. How mobile broadband can accelerate the digital economy

3.1 Digital citizenship

Connectivity is the foundation of a digital economy, allowing 2025 and 3.7 million additional jobs.34 The manufacturing and companies to distribute, and users to consume, digital retail sectors, characterised by low adoption of technology applications and services. In many Asian countries, connectivity and high reliance on labour, stand to benefit the most. Online is often mobile-first. This is particularly true of emerging transactions account for a small percentage of total retail economies, such as Indonesia, as well as the more remote areas transactions; however, a Google study estimates that the total of developed economies. The availability of high-performance first-hand e-commerce market in South-East Asia is expected mobile internet network coverage is therefore fundamental to to reach around $88 billion (IDR1,277 trillion) by 2025, with digital economy development. Indonesia representing a significant proportion of this figure.35 Better connectivity to reliable high-speed mobile broadband will Indonesia’s digital economy is, for now, still in its infancy, though provide the impetus for its acceleration, and mobile operators are one estimate of the potential impact of digital technologies in uniquely positioned to play a critical role in this process through the country suggests an increase in GDP of $150 billion (IDR2,160 infrastructure investment projects and the delivery of digital trillion, which translates to 16% growth on current GDP) by services.

34. Unlocking Indonesia’s digital opportunity, McKinsey & Company, 2016 35. e-conomy SEA: Unlocking the $200B Digital Opportunity, Google and Temasek, 2016

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Good connectivity is equally crucial to ešective digital citizenry According to the Deputy Minister for Finance, VAT revenue has and the ability to fully utilise government services. Around the increased 30% in Sweden over the past five years as a result of world, governments are increasingly using digital channels to digitisation, while income tax receipts also rose in India after the deliver social welfare, provide healthcare and enable citizens to government implemented measures to make the country less pay taxes online. Tens of millions of working adults in Indonesia cash-reliant.37 Currently, Indonesian smartphone users typically fail to fulfil their tax obligations; the government is losing much- purchase goods online using their mobile less than once a needed tax revenue that could be used to enhance the country’s month, if at all, and cash on delivery remains a common payment future prosperity. The 2016/17 tax amnesty was a step towards mechanism for completing digital transactions for physical expanding taxpayer penetration, but the results were not as goods. Better connectivity enables more transactions to take promising as the state would have hoped for. A total of IDR4,866 place online, which can save time and money for businesses who trillion ($348 billion) worth of assets was declared to Indonesia’s may have to make frequent trips to the bank to make deposits. It Tax O£ce, surpassing the government’s IDR4,000 trillion target also negates the potential losses from burglaries as they hold less ($286 billion). However, fewer than 200,000 brand new taxpayers cash on the premises. A greater volume of non-cash payments joined the programme. Only IDR147 trillion ($10 billion) worth could help to restrict the shadow economy, increase tax revenue of assets was repatriated into specified investment instruments and curtail criminal activity by making it increasingly di£cult to (compared to a target of IDR1,000 trillion or $72 billion).36 hold wealth outside the economic system.

A more ešective outcome could be achieved in the long term from facilitating a greater volume of digital transactions by improving the availability and speed of broadband services.

3.2 Health

Developing countries continue to face poor healthcare funding, no charge for patients; the solution is designed for healthcare which ašects access, quality of service, cost and key health professionals. MOM is developed by Philips, but no direct outcomes. Mobile, particularly mobile broadband, is playing a key relationship exists between Philips and the government. Telkom role in tackling various healthcare challenges in many of these Indonesia sources the software from Philips and sells it to the countries – for example, by providing the tools and applications government. As well as the distribution, the operator provides the to connect marginalised communities to health services via backbone, ICT infrastructure and data capabilities. A year-long video consultation, or by leveraging data analytics technology to pilot involving 650 pregnancies in collaboration with the Bunda determine the best location to establish teleclinics. Medical Center in Padang delivered positive results, including a three-fold increase in the early detection of high-risk pregnancies Indonesia is currently one of the most populous low- or middle- and a 99% reduction in anaemia from the first to the third income countries where maternal mortality rates are greater trimester through enhanced patient management. About 1,500 than the United Nations target of less than 70 in every 100,000 mothers were benefiting from the solution as of January 2017.38 births. In addition, there are fewer than three doctors, nurses or midwives available per 10,000 inhabitants – well below the 23 According to the GSMA’s mHealth Deployment Tracker,39 a recommended by the World Health Organization (WHO). number of other initiatives in Indonesia are attempting to address the country’s health-related issues. WorldVision, for example, Philips and Telkom Indonesia signed an agreement in 2016 with is equipping midwives in Aceh Besar with mobile phones and Sijunjung Regency in West Sumatra for full-scale commercial phone credit to consult with specialists while providing obstetric implementation of its Mobile Obstetrics Monitoring (MOM) care in remote locations. In addition, Indosat’s Kesehatan telehealth service in the region. MOM is a software solution (app- Keluarga (Family Health) enables its customers to contact a based, delivered via smartphone) for community healthcare doctor for consultation, while through Telkomsel’s Dunia Wanita workers. Patients do not need to use the app. It is designed to (World of Women) programme, customers can dial *468# help reduce maternal mortality rates through early monitoring from their phones to receive information on sexual health and and risk stratification. The government pays for the service at the pregnancy, as well as tips for a healthy lifestyle. district level as healthcare is decentralised in Indonesia. There is

36. “Tax Amnesty Program Indonesia Ended, What Are the Results?”, Indonesia Investments, April 2017 37. ‘We don’t take cash’: is this the future of money? FT, May 2018 38. Scaling digital health in developing markets, GSMA, 2017 39. For more detail, see https://www.gsma.com/mobilefordevelopment/m4d-tracker/mhealth-deployment-tracker/

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3.3 Education

Digital platforms are improving access to education and education or that of their children or relatives on a mobile phone becoming an important pillar in building knowledge-based on a monthly basis. Students can save much of their training societies. E-learning can increase learning opportunities, act as costs versus a traditional classroom, mainly due to the elimination a platform for skills building, and promote development in rural of the cost of travelling to attend courses. In 2015, Telkom, the and remote areas. This can lead to an improved quality of life for MCIT and Indonesia’s Ministry of Education and Culture (MoEC) individuals and their families, which in turn can fuel a virtuous embarked on an initiative that aims to replace physical textbooks cycle that boosts economic growth, creates more jobs and in schools (which can be expensive and di£cult to obtain and reduces poverty. distribute) with tablets and ebooks.40

With over 50 million students and around 4 million teachers, The first round of funding from the GSMA Ecosystem Accelerator many of whom are unqualified, Indonesia has the fourth largest Innovation Fund41 resulted in funds being made available to educational system in the world. However, while government Ruangguru from Indonesia. Ruangguru is a tech-enabled spending on education outweighs its budget for the nation’s education provider that launched in 2014. Its flagship product, healthcare, it is also one of the lowest performing. The country RuangKelas, is a freemium learning management system that ranked 62nd out of 72 countries in the 2015 Programme for helps students prepare for exams using content tailored to the International Student Assessment (PISA). Consequently, national curriculum, and helps teachers crowdsource educational operators are working to help students and teachers integrate content and distribute it to students. It improves the learning mobile technologies into the classroom. mEducation solutions experiences of students while also boosting access to resources already allow thousands of students in countries such as for teachers. Ruanggurru received a grant in April 2017 to launch Indonesia to access course content through SMS and audio an online marketplace for personalised education where teachers lessons. and tutors generate content, and students access content for free or request personalised advice for a fee.42 Ruangguru has According to the GSMA Intelligence Consumer Survey, 17.4% of now attracted more than 7 million registered users, with 900,000 those aged 18-24 in Indonesia access information to support their active every month.

40. The tablet is called the ‘e-Sabak’. See https://www.techinasia.com/indonesia-education-textbooks-ebooks-esabak 41. This is a programme aimed at building collaboration between start-ups and mobile operators. It is supported by the UK Department for International Development. 42. See Start-Up Portfolio, https://www.gsma.com/mobilefordevelopment/eainnovationfund/

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In January 2018, Ruangguru deepened its partnership with content on the web and on mobile. Ruangguru has also started Telkomsel, collaborating with the team from Telkomsel’s prepaid to feed its content into Telkomsel Loop’s educational portal, youth brand, Loop. Through the partnership, Ruangguru and Ensikloopedia. Ruangguru also announced it will be the exclusive Telkomsel Loop launched a campaign in February 2018 — the organiser of online tests to select the prospective receivers of Ruangguru Data Package — that gives users 1 GB of data, and President University scholarship. 2GB of free data exclusively to access Ruangguru’s educational

3.4 Smart cities and the Internet of Things

Asia Pacific is uniquely positioned to benefit from the Internet congestion in the capital city,44 the government has employed of Things (IoT), given the presence of a number of innovation Google’s Waze mobile app for drivers to update and share tra£c centres across the region, and local populations’ appetite to information, and has explored the use of IoT-integrated road-use rapidly adopt new technologies. The number of smart city management systems to replace tra£c toll booths. initiatives is growing, with innovative solutions emerging in countries such as South Korea, Singapore, Thailand, China and At the 2017 Indonesia Smart City Summit, the MCIT launched Indonesia. The latter’s increasing mobile penetration rate and a “movement towards 100 smart cities”. So far, the ministry large population present a significant opportunity to leverage has identified 25 cities to be part of this initiative, with 75 more IoT to solve urbanisation issues and drive economic growth. Its expected to be named by 2019.45 A pioneer of the movement is smart city plans will revolutionise the way citizens and businesses Bandung, which has begun the task of integrating data between access services in the urban environment, increase living government divisions and agencies to increase reliability, standards and ensure sustainable resource management. e£ciency and ešectiveness. Also, in April 2018, Indonesia proposed three of its cities (Jakarta, Makassar and Banyuwangi) For example, since late 2014 residents of Jakarta have been to be included in the ASEAN Smart Cities Network (ASCN) able to report issues or complaints directly to the city’s disaster cooperation programme, which aims to address the challenges of management agency through a mobile app called Qlue, and view urban areas through technological and digital development in line updates from others on their smartphones. People can share with the needs and potential of the region.46 updates on rainfall, river levels and flooding; attach location- tagged photos to their reports; share their reports on Twitter and The second Indonesian firm to receive money from the GSMA Facebook; and receive early warnings from the city’s disaster Ecosystem Accelerator Innovation Fund was eFishery.47 Indonesia information system.43 The service has now expanded to six other is the second largest aquaculture producer in the world; however, cities in Indonesia. According to the GSMA Intelligence Consumer ine£ciencies and a lack of skills and data are forcing Indonesia’s Survey, of those who had personally experienced a crisis or natural 3.5 million fish and shrimp farmers to cope with high feeding disaster in Indonesia in the past year, almost a fifth used a mobile costs.48 eFishery ošers an IoT-based smart fish-feeding machine phone to access or receive information, or to communicate with for commercial aquaculture. The feeder senses the appetite of someone to provide or receive assistance in 2017. fish through motion sensors that analyse their behaviour. The proprietary software also allows fish farmers to remotely manage The Jakarta administration’s smart city initiatives also include feeding in real-time from their phones. eFishery received a grant CROP (Cepat Respon Opini Publik, or Public Opinion Rapid in February 2018 to extend its value proposition to fish farmers by Response), a system designed to enable city o£cials to respond adding more features to the service and conduct a pilot project to public reports. In addition, given the considerable tra£c on narrowband IoT (NB-IoT) with a mobile operator partner.

43. Building Digital Societies in Asia, GSMA, 2015 44. “Indonesia’s Capital Has World’s Worst Tra±c”, The Diplomat, February 2015 45. “Ministry launches 100 smart city movement”, Republika, May 2017 46. “Indonesia expands smart city network to ASEAN”, Antaranews, April 2018 47. See Start-Up Portfolio, https://www.gsma.com/mobilefordevelopment/eainnovationfund/ 48. 60–90% of total production costs.

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3.5 Consumer base growth increasing the addressable market

Increasing the coverage of, and expanding access to, mobile In Indonesia, the growth in mobile broadband network coverage broadband services can encourage consumers to progress from and smartphone adoption is leading to a surge in the use of data, basic technologies and grows the number of users and amount which, in turn, is leading to rapid growth in data revenues for the of activity online. This expands the addressable market for digital country’s operators. For instance, XL’s use of its 900 MHz spectrum services, which can be a significant driving force behind many for 3G has significantly improved coverage and quality outside of economies.49 Moreover, encouraging the use of mobile services Java. In light of growing smartphone adoption and mobile internet enhances the diversity of consumers connected, which provides subscribers, data revenue in Q4 2017 was more than double the new business opportunities and models for telecoms providers. figure in Q4 2015. In addition, data accounted for 52% of Indosat’s total revenues in Q4 2017, up from 39% a year earlier. For example, in 2017, Telkomsel signed a memorandum of understanding (MOU) with Habibi Garden and Eragano to Over the medium term, the ongoing migration to 4G in this highly develop Peduli Tani Anak Negeri (PETANI), a digital agriculture populated market will incentivise uptake by new consumers programme. The partnership aims to empower farmers, increase and upgrades (and potentially ARPU uplifts) from existing their productivity, minimise failures to plan and reduce costs. subscribers, which will increase data tra£c and help to ošset It will combine Telkomsel’s rural mobile network footprint with the decline in traditional revenue (from sources such as voice Habibi Garden’s ability to monitor real-time plant conditions and SMS). Indonesia, as well as Bangladesh and Thailand, and Eragano’s agricultural market access, financial support will contribute to overall growth in revenue for the wider and capacity-building solutions. Similarly, XL’s mFish initiative region, which has declined in some Asia Pacific countries due promotes the use of digital technology to improve the to weakening subscriber growth (particularly in the region’s productivity and safety of Indonesian fishermen, while preserving developed markets), intensifying competition (e.g. the launch the country’s environment and marine ecosystems. of Jio in India), cuts to regulated termination charges and challenging macroeconomic climates.

49. “UK digital technology sector outpacing wider economy” FT, May 2018

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23 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

4. The mobile industry’s role in achieving the Sustainable Development Goals

4.1 Mobile addressing social challenges

Like other UN member states, Indonesia has adopted the 17 Integrated Digital School (IDS) Sustainable Development Goals (SDGs) which seek to end IDS is a programme to digitise schools’ information systems poverty, protect the planet and ensure prosperity for all. Some (particularly those in suburban and rural areas), which can 169 targets sit behind the SDGs’ high-level ambitions and facilitate the checking of pupil attendance through face provide greater direction, quantification and timing for each recognition technology and radio frequency identification, and goal. Mobile is playing a key role in tackling various social and allow students access to intra- and extra-curricular activities, and economic challenges outlined by the SDGs, including poverty, the electronic book library. It has been running since 2012 and health, education, gender equality, employment, safer cities, was implemented in 87 schools across Indonesia at the end of climate change and identity. Mobile technology provides access 2015.50 The IDS programme is one of Telkomsel’s key corporate to tools and applications that help address these issues, and social responsibility activities, aiming to provide adequate enables innovative approaches to building more e£cient and education to school communities with the supporting technology environmentally sustainable societies. infrastructure. Telkomsel has provided training, networks, hardware and applications, including digital information and SDG 4: Quality education – ensure smartphones that are integrated with the teaching materials, to inclusive and equitable quality enhance school management and enrich the teaching/learning education and promote lifelong process. learning opportunities for all Mobile operators are working to help students and teachers integrate mobile technologies into the classroom, which can enable access to greater learning opportunities for youth populations in the poorest villages and most remote locations.

50. Annual report 2015, Telkomsel, 2015

24 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Future Leaders E-Learning Portal SDG 16: Peace, justice and strong XL is committed to nurturing young talent in Indonesia and institutions – provide access to justice supporting the government’s education strategy through its XL for all and build ešective, accountable Future Leaders (XLFL) programme. Since the scheme began in and inclusive at all levels 2011, XL has built a free digital learning platform, eLearn, which has allowed thousands of young adults across the country to In Asia Pacific, around 850 million people (20% of the access online training opportunities to develop their leadership population) are estimated to be unregistered, including skills. eLearn now has 17,000 active users.51 As part of its 1000 around 65 million children under the age of five.56 Given Broadband Schools initiative, XL has collaborated with the MoEC its high global penetration levels and population coverage, to expand high-speed internet services to more than 400,000 mobile has the potential to be leveraged as a trusted and students and teachers in 42 municipalities/districts in 20 robust digital identity solution for the underserved, leading provinces. to greater social, political and economic inclusion, and making individuals more visible to their governments. SDG 5: Gender equality – achieve gender equality and empower all women and girls Identity initiatives Indonesia represents a progressive adopter of electronic identity In low- and middle-income countries, women credentials and technologies in light of the launch of its ambitious often have less access than men to mobile technology. e-KTP (Kartu Tanda Penduduk Elektronik, or Resident Identity Closing the gap in mobile ownership and internet use Card) programme in 2011. It has been able to rapidly scale up today could generate an incremental revenue of $15 billion enrolment in the programme, reaching 100 million people during (IDR216 trillion) over the coming year.52 The mobile industry the programme’s first year and 140 million by 2012. is working to close this connectivity gap and deliver socioeconomic benefits to women, such as increased access Since 2015, child-development organisation Plan International to financial, health, education and employment services. has been working with the Ministry of Home Ašairs (MoHA) to identify ways to increase the coverage of birth certificates in Indonesia.57 As part of the Medium Term Development T-Cash Plan 2015-19, Indonesia’s president has set a target of 85% of T-Cash, a mobile money product from Telkomsel, has been children to have a birth certificate by the end of the period. One empowering women in Indonesia since its launch in 2015. social protection programme is therefore using a mobile app To accelerate the formation of the digital financial services to complete birth registration for applications and marriage ecosystem, Telkomsel has worked together with Muslimat certification. SIAK, MoHA’s population database, validates the Nahdlatul Ulama (MNU) to introduce T-Cash to Perempuan application using the unique ID numbers of the parents, which Nusantara (Women of Indonesia) community members as a then triggers the creation of an identity-card number as well as a non-cash solution for transactions. This collaboration enables birth certificate for the child. women, especially those who work in small- and medium- sized enterprises (SMEs), to act as T-Cash merchants, with all transactions carried out through the service. The women also received guidance to become T-Cash agents.53 By the end of 2017, T-Cash had accumulated more than 10 million registered users in 34 provinces in Indonesia.54

Sisternet Sisternet is XL’s digital platform for Indonesian women, introduced to empower and enrich women’s online experience, and to encourage and inspire their participation in the digital economy. At the end of 2017, the Sisternet community had more than 15,000 registered users.55 The XL portal contains information and advice on health, careers, finance, family life and parenting, as well as ošering mentorship through the Sisternet Academy.

51. Annual report 2017, XL Axiata, 2017 52. The GSMA estimates that, in low- and middle-income countries, 184 million and 327 million fewer women than men own a mobile phone and use the mobile internet, respectively. The $15 billion estimate assumes that this gender gap would be closed during 2018, and represents the subsequent 12-month incremental revenue opportunity. For more information, see The Mobile Gender Gap Report 2018, GSMA, 2018 53. Annual report 2016, Telkomsel, 2016 54. “Tcash on being an agnostic product and its plan to spin-o– from Telkomsel”, E27, December 2017 55. Sustainability & National Contribution Report 2017, Axiata, 2018 56. World Bank ID4D database 57. Birth registration for all in Indonesia: A roadmap for cooperation, Plan International, 2016

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5. The importance of spectrum for mobile broadband adoption

5.1 The need for spectrum

The internet has been the most important enabler of social are therefore unable to benefit from the opportunities of the development and economic growth of the last generation. Yet, internet. When considering how to reduce the digital divide, each despite significant mobile internet penetration growth in recent of these nations faces challenges around some key enablers of years, 2.4 billion mobile subscribers in Asia Pacific remain o·ine. mobile internet connectivity, including ašordability, consumer These consumers, mostly in low- and middle-income countries, readiness and availability of locally relevant content.

26 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

100%

90%

80% For Indonesia, one of the biggest barriers to the adoption of spectrum dimension in the index, which feeds into Indonesia’s mobile70% services is the availability of high-performance mobile overall ranking. The key drivers of this score are limited rural 4G internet60% network coverage. It is the world’s biggest mobile- coverage, slow download/upload speeds and an incomplete first market, but according to the GSMA’s Mobile Connectivity digital switchover. Index Indonesia50% scores 61 overall with a score of 43 for the 58 infrastructure40% component. The infrastructure score may be Ešective spectrum licensing is critical to support the investment higher than some of its regional peers, such as Bangladesh (35) required to further expand mobile access, as well as enhance and Percentage of connections Pakistan30% (34), but is well below countries such as Australia the quality and range of services ošered to citizens. Allocations (84) and20% South Korea (78) – and below the average result of 51 of licensed spectrum guarantee the protection of the large for Asia Pacific. and necessary investments for nationwide network rollouts, 10% encouraging long-term financial commitments for the benefit of Despite0% rising industry investment, one of the primary causes of a connected society. With a future ‘spectrum crunch’ expected as a low total score2017 (and, in particular,2018 a relatively2019 poor performance 2020 data 2021 tra£c increases, 2022 additional 2023 bandwidth 2024 will be needed,2025 as will on the infrastructure metric) is a lack of spectrum availability for more tower sites and improved e£ciency (through technology use by mobile providers. This is reflected in a score of 18 for the upgrades). 2G 3G 4G 5G

FIGURE 9: SPECTRUM HOLDINGS OF INDONESIAN MOBILE OPERATORS59

SmartFren

Tri

XL

Indosat

Telkomsel

0 25 50 75 100 125 150 MHz

850 MHz 900 MHz 1800 MHz 2.1 GHz 2.3 GHz

Source: GSMA Intelligence

800

As shown700 in Figure 10, the majority of spectrum currently where data tra£c is concentrated and substantial capacity is available600 in Indonesia is at frequencies above 1 GHz. Much of needed to avoid network congestion. Lower frequencies (below the spectrum assigned to Asian mobile operators in the past 1 GHz) provide greater geographic coverage at a lower cost as five years500 or so has been in higher capacity bands, which are fewer base stations are required, making these coverage bands less suited400 to providing 4G coverage in remote areas. Operators ideal for use in rural areas. typicallyMHz use these frequencies to cover densely populated areas 300

200

100

0

Japan India Singapore Malaysia Australia Thailand Indonesia Vietnam Pakistan South Korea New Zealand Philippines Bangladesh

Sub-1 GHz Above 1 GHz

58. See https://www.mobileconnectivityindex.com/ 59. Net1 also holds 15 MHz in the 450 MHz band, while a number of regional operators, including BOLT!, hold spectrum at 2.3 GHz

27 100%

90%

80%

70%

60%

50%

40%

Percentage of connections 30%

20%

10%

0% 2017 2018 2019 2020 2021 2022 2023 2024 2025

2G 3G 4G 5G

SmartFren

Tri

XL

Indosat

Telkomsel

ACCELERATING0 INDONESIA’S DIGITAL25 ECONOMY: ASSIGNING50 THE 700 MHZ BAND75 TO MOBILE BROADBAND100 125 150 MHz

850 MHz 900 MHz 1800 MHz 2.1 GHz 2.3 GHz

FIGURE 10: SPECTRUM ALLOCATIONS ABOVE AND BELOW 1 GHZ60

800

700

600

500

400 MHz 300

200

100

0

Japan India Singapore Malaysia Australia Thailand Indonesia Vietnam Pakistan South Korea New Zealand Philippines Bangladesh

Sub-1 GHz Above 1 GHz

Source: GSMA61

When analysed against several relevant comparator countries, 1300 MHz and 1960 MHz of bandwidth. This requirement is Indonesia lags well behind many of the developed Asian markets much higher than the current 437 MHz assigned in Indonesia.63 – as well as behind the Philippines – in terms of spectrum Accordingly, the Mobile Connectivity Index scores Indonesia availability for mobile operators. According to studies by the below the regional average for per-operator spectrum availability International Telecommunication Union (ITU),62 the estimated at both sub-1 GHz64 and between 1-3 GHz for each of the four spectrum requirement for mobile services for 2020 is between years studied (2014, 2015, 2016 and 2017).

FIGURE 11: SPECTRUM AWARDED VERSUS 4G ADOPTION IN ASIA PACIFIC65

750 Singapore

600

Australia 450

300 Indonesia

Pakistan 150 Total spectrum awarded (MHz)

0 0 20 40 60 80 100

4G/LTE connections (% of total)

Source: GSMA

810 1,460

60. South Korea excludes 28 GHz spectrum awarded in June 2018. 61. See https://www.gsmaintelligence.com/networks/ 62. Report M.2290, ITU, 2013 63. A similar story is transpiring in Central America. For more detail, see Assessing the impact of market structure on innovation and quality, GSMA, 2018, https://www.gsma.com/latinamerica/competition-centralamerica3.0% 64. Excluding the digital dividend (700 MHz) band. 65. GSMA Intelligence data for Indonesia, Australia, Bangladesh, India, Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea, Thailand and Vietnam. Data correct as of H1 2018. 5.4% 160 28 210 0.6%

270 0.8%

1.0%

Mobile operators Related industries Indirect Productivity Total

2.1 10.9

4.9

0.7 3.3

Mobile ecosystem Wider economy Mobile broadband Capacity improvement Total productivity impact productivity impact ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

While some Asia Pacific countries, including Indonesia, have only be feasible in urban areas. In rural parts of the country, using launched LTE networks at frequencies below 1 GHz, only a the 1800 MHz band for 4G will at some point become financially fraction of available spectrum in the region is in this range. While unsustainable; sub-1 GHz spectrum will be required to e£ciently the 450, 800, and 1800 MHz bands have been successfully serve a wide population. Given Indonesia’s digital society refarmed for 4G use, assigning more low-frequency spectrum ambitions, mobile infrastructure and services need to meet future is key to improving rural coverage. The ongoing deployment of demand. 1800 MHz for 4G services by Indonesian mobile operators will

5.2 Releasing the digital dividend in Indonesia

While certain 2.6 GHz frequencies should become available for Indonesia, from dense urban areas to communities living more mobile in the coming years once the current licences expire, a rurally, and realising numerous socioeconomic benefits, it is more practical and ešective way the Indonesian government critical that planning for the release of the band moves forward. could increase mobile broadband coverage and adoption in the country is to quickly release 700 MHz spectrum for use by mobile As many of the people who will become connected during operators. the next few years live in rural areas, this band’s technical characteristics support better coverage with less infrastructure There have been coordinated ešorts in the region – specifically, a compared to higher bands, which are typically used for boosting joint commitment from Malaysia, Indonesia, Brunei and Singapore capacity in hotspot areas. This e£ciency enables operators to in 2013 to align with the Asia Pacific Telecommunity (APT) 700 reduce capital and network costs, benefiting consumers through MHz band plan.66 However, while the likes of the Philippines faster rollouts and lower retail prices. With millions of Indonesian have reallocated this spectrum to mobile, Indonesia has still not citizens unserved by any type of broadband, the 700 MHz completed its digital switchover process and is therefore yet band, and spectrum below 1 GHz in general, will continue to be to allocate spectrum in the digital dividend band (700 MHz) to important as operators strive to connect everyone. By gaining mobile services. access to 700 MHz spectrum, operators will be well placed to tackle the prevailing coverage gap, resulting in higher mobile On 1 August 2018, the MCIT issued a consultation on digital TV penetration and improved access to services, such as education broadcasting, but made no announcements of timelines for when and healthcare, in rural areas. Mobile operators, other ecosystem the band is to be released to operators. As this band is key to companies, governments and regulators all have a role to play in bringing ašordable 4G mobile broadband services to all parts of ensuring that Indonesia reaps the benefits as soon as possible.

66. “GSMA welcomes decisions by Brunei, Indonesia, Malaysia and Singapore to harmonise spectrum for mobile broadband”, GSMA, June 2013

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5.3 Ešective spectrum pricing

Ešective pricing is a key feature of spectrum policy that supports ašordable pricing. Mismanagement could have a detrimental better quality and more ašordable mobile broadband services. impact on operators’ ability to formulate strategy and invest, High spectrum prices have been linked to more expensive, putting the growth of the Indonesian mobile market at risk. slower services, with worse coverage.67 It has also been shown that governments appear to be playing an active role in driving In spectrum auctions, reserve prices are used to help discourage up spectrum prices to pay oš short-term national debt.68 non-serious bidders and ensure a floor price for spectrum in case Governments should assign spectrum to support their digital competition for the licences is weak. Regulators should set reserve connectivity goals rather than as a means of raising revenue. prices below a conservative estimate of market value to ensure scope for competition and price discovery in the auctions. A High spectrum prices increase operator costs, which reduces their modest reserve price will deter frivolous entry of non-competitive financial ability to deploy mobile networks and therefore put the firms while ensuring that winners pay at least the ‘opportunity cost’ spectrum to use, as funds are diverted towards licensing instead of having denied the next best use for the spectrum. Pricing rules of infrastructure rollout. They may also be passed through to – whether by auction or beauty contest – should also ošset any consumers, which can acutely ašect ašordability for rural users. onerous coverage obligations with commensurate concessions via If they are set too high, spectrum can go unsold, which causes an a discounted final price.70 irrecoverable loss of commercial and public value.69 Myanmar provides a prime example of the positive outcomes from When considering how to award spectrum (such as the 700 pricing spectrum to expand coverage rather than to maximise MHz and 2.6 GHz bands) to mobile operators, it is vital that the revenue from an auction. Despite a late liberalisation of the telecoms government and regulator consider the need for ešective and market, Myanmar has leapfrogged other emerging markets to

67. Spectrum pricing in developing countries, GSMA, 2018, and E–ective Spectrum Pricing, GSMA and NERA, 2017 68. Spectrum pricing in developing countries, GSMA, 2018 69. Enabling Rural Coverage: Regulatory and policy recommendations to foster mobile broadband coverage in developing countries, GSMA, 2018 70. E–ective Spectrum Pricing: Supporting better quality and more a–ordable mobile services, GSMA and NERA

30 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

deploy 4G services, with mobile connections reaching 55.7 million frequencies and transmitters that are in use. This formula makes as of H1 2018 compared to 5.4 million at year-end 2012. The upfront spectrum in Indonesia particularly expensive and discourages cost of the 900 MHz band, guaranteed tenure of spectrum licences network investment. A historical analysis by the GSMA shows and clear roadmap for future spectrum releases helped give new that these fees are approximately 10% of gross revenue.71 entrants Telenor and Ooredoo the confidence to invest rapidly in the Indonesia charges the highest gross fee for spectrum among the expectation of gaining market share. neighbouring ASEAN countries. This directly ašects the industry’s net present value (NPV) and hence telecoms service delivery. The cost of spectrum usually includes annual fees in addition to GSMA findings suggest that reducing spectrum fees to a ceiling of upfront costs. Annual fees can represent considerable expenses 5% of gross income would increase fiscal revenues by $47 billion for operators and prove another barrier to mobile broadband (IDR677 trillion) over a 10-year period. coverage and adoption. Annual spectrum fees for Indonesian mobile operators are calculated using a formula based on the

5.4 Benefits of a long-term spectrum roadmap

Governments can maximise the social gains from national decisions to acquire spectrum mean they should be provided spectrum resources by developing a management framework with as much notice as possible of forthcoming assignment that supports investment, the e£cient use of spectrum and processes, especially in the case of spectrum renewals. A holistic competition. This framework should ensure that su£cient roadmap that outlines the government’s strategy for the release spectrum is available for the services that will deliver the greatest and renewal of spectrum protects against an asymmetry of benefits to society, establish clear rights to avoid interference and information. It reduces uncertainty by allowing operators to avoid unnecessary restrictions and conditions of usage. assess the long-term value of their infrastructure investments and more accurately value spectrum lots when they are auctioned. With respect to planning and certainty, it is essential for the evolution of a country’s mobile sector that a clear and Short licence duration should be avoided so as not to create comprehensive spectrum roadmap is in place. This sets out the uncertainty on the long-term return on investments, making them steps and timings in making available unused spectrum and less attractive, especially towards the end of the licence term. The better utilising existing allocations. Spectrum roadmaps are longer the duration of a licence, the greater the certainty provided also important for ensuring su£cient spectrum will be available for operators to undertake investments in rolling out networks to meet the requirements driven by changing technology and and deploying new services. These factors combined with an demand. Mobile operators’ business plans are intrinsically investment-friendly regulatory environment will enhance stability, linked to the availability of spectrum and the conditions under reduce risk and encourage Indonesian operators to develop which it is made available, while the complexity and cost of business cases and make positive network investment decisions.

71. Internal 2016 GSMA report.

31 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

6. Economic benefits of assigning 700 MHz to mobile broadband

The internet has allowed economic growth to take a new direction in many countries. As a result, a burgeoning digital economy has grown, which has supported related industries and millions of jobs worldwide. The large-scale adoption and use of digital technologies is a key driver of measurable social and cultural value, increased productivity, improved security and greater capacity to tackle social and environmental issues.

In 2017, the mobile ecosystem72 contributed $1.5 trillion to the that are hardest to reach. However, as more people become Asia Pacific economy, equivalent to 5.4% of the region’s GDP.73 able to access mobile internet, providing good capacity will be Mobile has been instrumental in expanding the reach of the crucial to ensuring the continued growth of Asia Pacific’s – and internet for a large number of people, particularly in the areas Indonesia’s – digital economy.

72. This includes mobile network operators; infrastructure service providers; retailers and distributors of mobile products and services; device manufacturers; and mobile content, application and service providers. 73. The Mobile Economy: Asia Pacific 2018, GSMA, 2018

32 750 Singapore

600

Australia 450

300 Indonesia

Pakistan 150 Total spectrum awarded (MHz)

0 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND 0 20 40 60 80 100

4G/LTE connections (% of total)

FIGURE 12: MOBILE (DIRECT, INDIRECT AND PRODUCTIVITY) CONTRIBUTION TO GDP IN ASIA PACIFIC (2017 $ BILLION, % 2017 GDP)

810 1,460

3.0%

5.4% 160

210 0.6%

270 0.8%

1.0%

Mobile operators Related industries Indirect Productivity Total

Source: GSMA Intelligence (note: totals may not add up due to rounding)

2.1 10.9

6.1 There will be a capacity4.9 constraint with the current provision of spectrum

As a fast-growing digital economy, Indonesia’s0.7 citizens will I Population density: people are more spread out in rural demand more 3.3and more data over the next 10 years and beyond. areas, making it hard to e£ciently cover a commercially Cisco estimates that Indonesians will download 3.5x more in sustainable number of consumers with a mobile network. 2021 than they did in 2017.74 At the same time, the number of This is stark in Indonesia, where urban density is 4,159 mobile broadband users in Indonesia will grow from 39% of the people per square kilometre, compared to 72 people per population in 2017 to 56% in 2021. This demand for data will need square kilometre in rural Indonesia. to be met with improved capacity for mobile networks. Mobile ecosystem Wider economy Mobile broadbandI Di£cult terrain:Capacity there improvement are many geographicalTotal features such productivity impactas mountainsproductivity and dense impact forests in rural areas, which make Moves towards providing additional capacity are underway in network design di£cult. Indonesia’s particular issue is the Indonesia’s main urban centres, with the widespread provision sheer number of small islands that are common in its rural of 3G services and recent investment in 4G. However, rural parts, making it di£cult to plan e£cient sites and roll out Indonesia, where just under half the country’s population lives, backhaul. struggles with existing mobile broadband capacity in comparison. With typically low fixed broadband coverage, rural areas depend I Lack of basic infrastructure: power provision, road access on mobile internet to access basic services relating to finance, and public buildings are all important to identifying areas healthcare, government services and social media. Mobile suitable for the rollout of networks. Rural areas often lack broadband more generally enables consumers and businesses in one or more of these features. rural areas to stay connected and participate in digital commerce I Low per-capita income levels: the three above factors and society. Yet, as rural Indonesia is sparsely populated, mean it is significantly more costly to build networks in providing wide coverage of good quality mobile broadband can rural areas than urban areas. Rural consumers tend to be expensive. A recent GSMA report75 highlights the issues faced also have lower incomes than their urban compatriots.76 by operators in tackling rural coverage: Coverage is meaningless if it cannot be achieved e£ciently to enable lower prices.

74. VNI Mobile Forecast Highlights, 2016-21, Cisco 75. Unlocking Rural Coverage: Enablers for commercially sustainable mobile network expansion, GSMA, 2018 76. For example, 13.8% of the rural population live below the poverty line, compared to 8.2% of urban Indonesians. See Summary of Indonesia’s Poverty Analysis, Asian Development Bank, 2015

33 750 Singapore

600

ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBANDAustralia 450

300 Indonesia

Pakistan 150 While Total spectrum awarded (MHz) 1800 MHz and 2.1 GHz has been ešectively used in In countries across the region, sub-1 GHz spectrum has been used Indonesia for deploying 3G and 4G in urban areas, success to provide mobile broadband coverage in rural areas. The Asia 0 in rural areas is dependent on spectrum from lower bands to Pacific Telecommunity (APT) agreed to a technical allocation 0 20 40 60 80 100 gain coverage over a wider area. To provide mobile broadband of the spectrum in the 700 MHz band, which has since been in rural areas, operators are currently relying on 850 and 9004G/LTE connectionsadopted (% of by total) many countries in the region including Japan, India MHz frequencies, which are already used for 2G services. Some and Australia for future use. Indonesia will also benefit from the Indonesian operators have successfully used these bands to use of sub-1 GHz spectrum for mobile services – not only mobile increase the reach of mobile broadband to almost 90% of the broadband, but also vital services such as public protection and country. However, with significant data growth expected over the disaster relief (PPDR), and education. years, more sub-1 GHz spectrum is needed to continue serving rural areas ešectively. 810 1,460

3.0%

6.2 $11 billion in additional economic benefits5.4% 160

for Indonesia210 0.6%

270 0.8% If 700 MHz spectrum is allocated to mobile broadband, the to total the country’s GDP by the end of the period. This figure is Indonesian economy1.0% will experience economic benefits over the estimated by calculating three economic impacts: on the mobile 10-year period between 2020 and 2030 of $11 billion, adding 1% ecosystem, on the wider economy and on economic productivity. Mobile operators Related industries Indirect Productivity Total

FIGURE 13: ECONOMIC IMPACT OF ALLOCATING 700 MHZ TO MOBILE (10-YEAR IMPACT, NPV $ BILLION)

2.1 10.9

4.9

0.7 3.3

Mobile ecosystem Wider economy Mobile broadband Capacity improvement Total productivity impact productivity impact

Source: GSMA Intelligence (note: totals may not add up due to rounding)

34 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Impact on the mobile ecosystem Impact on the wider economy The mobile ecosystem consists of mobile operators and In addition to their direct impact on the economy, firms in the infrastructure providers, mobile handset manufacturers, mobile ecosystem purchase inputs from their providers in the retailers and distributors of mobile products and services, and supply chain. For example, handset manufacturers purchase mobile content, application and service providers. The direct inputs from microchip providers, and mobile content providers economic contribution to GDP of these firms is estimated by require services from the broader IT sector. Furthermore, some of measuring their value added to the economy, including employee the profits and earnings generated by the mobile ecosystem are compensation, business operating surplus and taxes. spent on other goods and services, stimulating further economic activity in those sectors. The availability of more sub-1GHz spectrum will mean that it will become more technically and commercially feasible for operators This multiplier ešect trickles through the economy. Consequently, to roll out 4G in sparsely populated rural areas. As a result, mobile a further $700 million is added to the Indonesian economy over broadband can be delivered to rural Indonesians more e£ciently. a 10-year period as a result of the impact of the expanded mobile This will drive the accelerated adoption of mobile internet by ecosystem on the wider economy. residents in these areas. The impact varies over the years, but in some years mobile broadband will be used by 10 million more people (4% of the population) than in the base case.

The Indonesian mobile ecosystem will benefit from the improved adoption. The markets for mobile operators, manufacturers of smartphones and content providers will grow. This growth will add value to the economy, worth $3.3 billion in the 10-year period following 2020.

35 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Impact on economic productivity There are additional benefits to using 700 MHz for mobile Indonesian productivity can be boosted by $7 billion in the 10- broadband that we have not quantified in this assessment but year period. This is due to two impacts: that are equally important: n With the faster take-up of mobile broadband, the Indonesian n Indoor coverage improvements: As well as the benefits economy will benefit from productivity ešects resulting of improved and more e£cient coverage for rural areas, all from the 10 million Indonesians that will become new mobile Indonesians will benefit from improved indoor signals from broadband users. Access to mobile broadband improves the use of low-band spectrum for mobile broadband. This access to information and services, which in turn drives is because low-frequency spectrum has good propagation e£ciency in business processes across many industries, characteristics; signals are better able to penetrate walls to including finance and health. This impact of mobile internet is indoor users. This will benefit businesses in Indonesian cities particularly significant in rural areas of Indonesia, where fixed in particular and could have significant productivity ešects infrastructure is poor and mostly confined to Indonesia’s large associated with the use of mobile for work and business. cities and business and industrial districts. This will result in an impact of $4.9 billion over the 10-year period. n Reduction in cross-border interference: Indonesian territory borders Malaysia, Singapore and Papua New Guinea. n The improved capacity provided by a larger allocation of Allocating 700 MHz to mobile broadband will mean the spectrum and ešective use of 4G technology allows current enacting of the APT 700 plan, which will ensure that all mobile broadband users better access to the internet (faster users in the region are unašected by potential cross-border download speeds). Academic studies show that this leads interference issues relating to mobile broadband. The ultimate to economy-wide productivity benefits, as users are able to benefit is improved service quality to those living closer to access a wider range of services that are not possible with international borders with Indonesia, and those in Indonesia lower download speeds. This will have an economic impact of who live close to the border of neighbouring countries. $2.1 billion over the 10-year period.

6.3 The benefits of 700 MHz can be realised under certain conditions

The economic benefits above have been estimated based on n Ensure the full allocation of 700 MHz to mobile broadband: the current regulatory environment and an assumption that the The benefits of 4G are enhanced when large blocks of spectrum will be made available for use from 2020 onwards. contiguous spectrum are allocated to mobile operators. The government could consider the following to ensure that the Reducing the proposed allocation of 700 MHz would reduce benefits are fully realised: the potential capacity of mobile broadband and therefore the benefits described above. n Avoid delays in the allocation of the spectrum: Based on our modelling, even a short delay by three years to 2023 n Support streamlined planning and administrative could cost the Indonesian economy $3 billion in lost benefits. processes: In a recent study,77 the GSMA highlighted how This is because of restricted speeds and the ine£cient Indonesian operators are often required to ask two or three expensive build-out of base stations during the delayed years. administrative bodies for permission before building out a site. A fast-track process could speed up the process of mobile broadband rollout and enable consumers to enjoy higher speed broadband earlier.

77. Unlocking Rural Coverage: Enablers for commercially sustainable mobile network expansion, GSMA, 2018

36 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

37 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

7. Other factors to support the development of the digital economy

7.1 Network sharing can lower risks and costs of infrastructure deployment

Infrastructure, or network, sharing is an area for Indonesian participate in the co-deployment of infrastructure, including policymakers to consider when looking at how to increase base stations. The government’s action aims to accelerate 5G high-speed mobile connectivity and foster digital inclusion and commercialisation while reducing rollout costs: the potential engagement. The high upfront investment required to deploy capex savings are estimated at KRW1 trillion ($923 million) over mobile infrastructure and the long repayment cycle present the next 10 years.78 In India, Indus Towers, controlled by Vodafone operators with a number of risks and challenges. Network sharing and Idea, announced its intention to merge with Bharti Infratel can lower the cost of expanding 4G coverage in remote areas by to create the world’s largest tower company outside China. allowing operators to jointly use masts, buildings and antennas, The three companies expect the combination to support their avoiding unnecessary duplication of infrastructure. It can also continued rollout of 4G networks and their preparations for the help reduce the carbon footprints of mobile networks. 5G era.79

For example, in April 2018, South Korea announced that the current infrastructure sharing regulation in place for fixed networks will be extended to mobile and will see operators

78. “Korea operators to build shared 5G infrastructure”, Mobile World Live, April 2018 79. “Bharti Airtel seals Infratel, Indus Tower deal”, Mobile World Live, April 2018

38 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Indonesia’s MCIT began the process of devising new rules to Entering into a shared infrastructure deal has important strategic encourage passive sharing of network elements, including and financial implications for mobile operators, including lower ducts, poles, towers and cabinets. The ministry considered costs due to more e£cient use of infrastructure, lower risk due passive sharing in areas that already have infrastructure in place to co-investment, and growth opportunities from expanding (‘brownfield’ sites) and areas where new infrastructure will coverage to new areas.81 By reducing the risk and costs of be built (‘greenfield’). It also explored the potential for active investing in network expansion, sharing deals can have a positive infrastructure sharing (e.g. multi-operator radio access networks, ešect on network coverage, especially in rural areas, thereby MORANs) and has indicated that clear guidelines may also driving participation in the digital world. Indonesia’s regulatory be released in future concerning such arrangements. While a framework must support investment to ensure that infrastructure favourable decision would allow Indosat and XL to deepen their develops at a rate in line with the needs of the country’s people. existing LTE network cooperation programme, little progress has so far been made in moving this issue forward. The government should seize this opportunity by enacting regulations that allow for full active and passive infrastructure If network sharing agreements were realised, the MCIT considers sharing, and should encourage commercially negotiated Indonesian mobile operators could save 40–60% of their capital cooperation where market conditions allow, without mandating and operating expenditure, allowing them to focus ešorts on sharing that might stymie investment. For the government, the extending services, strengthening their sales and marketing potential positive outcomes of infrastructure sharing include activities, and potentially reducing end-user prices.80 For these optimising scarce resources, less duplication of investment, e£ciencies to materialise though, o£cials would also have to higher service quality in areas where deployment of new masts is take steps to streamline network sharing rules on a national basis. di£cult, and product and technological innovation as operators The fees charged for access to various network components vary compete on service dišerentiation. greatly from place to place. The Indonesian government should take a national-level view and put revenue raising by regions or districts aside in favour of supporting development of the country’s digital economy.

7.2 Market consolidation to maintain healthy industry economics

Network deployment remains a key source of competitive concentrations lead to greater investments at the company advantage in mobile markets around the world. However, level.83 A reduction in the number of mobile operators from operators may instead look to acquire or merge with rivals to the status quo could encourage investment by allowing the expand their footprints, acquire spectrum and/or subscribers, remaining players to benefit from scale economies and better gain scale, realise synergies, or become a stronger market player recover network costs; this could be important in Indonesia given to compete more ešectively. the relatively low ARPU levels.84 A merger may also present opportunities for spectrum aggregation, for partnerships to For policymakers, facilitating the right market structure develop non-traditional services, or for external financing. can incentivise operator investment in mobile broadband Investment in existing and new technologies to improve coverage technologies that supports the growth of the digital economy and capacity would benefit consumers by enhancing network and can deliver lower unit prices and/or improved quality. A performance and increasing digital inclusion – both crucial GSMA review of four economic papers82 indicates that, due to considering the low penetration of fixed broadband. economies of scale and a stronger financial position, in-market

80. “KemKominfo formulating passive infrastructure sharing rules”, Telegeography, September 2017 81. Enabling Rural Coverage: Regulatory and policy recommendations to foster mobile broadband coverage in developing countries, GSMA, 2018 82. CERRE (2015), Frontier (2015), Houngbonon & Jeanjean (2015), Houngbonon & Jeanjean (2016), HSBC (2015), WIK (2015) 83. Mobile Policy Handbook, GSMA, 2017 84. Assessing the case for in-country mobile consolidation in emerging markets, GSMA, 2015

39 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Indonesia’s push for consolidation85

The Indonesian mobile market has experienced rapid growth of Axis’s 1800 MHz spectrum. In March 2014, the KPPU gave over the past decade, with market penetration increasing from its post-closing opinion that the merger should be approved 58% at the end of 2008 to 165% at the end of 2017. However, without permanent conditions, noting that the merger would with many operators in competition, smaller players have not risk creating a monopoly, considering its 21% projected attempted to scale up, which sparked price wars in the late market share compared to the much larger market shares of 2000s, degraded ARPU and caused significant operating losses. operators Telkomsel and Indosat and finding this a tolerable delta in the Herfindahl-Hirschman Index (HHI). In its assessment, The MCIT has long recognised the need for consolidation in the the KPPU also considered that consolidation would be beneficial market. Early in 2016, Minister Rudiantara of the MCIT renewed as the market was too fragmented, meaning the available the public campaign to encourage mergers or exits among the spectrum had to be split between many operators. operators. In January 2016, he threatened to revoke licences if the holders did not move soon to build out their networks, and The KPPU imposed a remedy of requiring the merged entity encouraged smaller operators without su›cient resources for to produce quarterly reports for a period of three years on the network investments to merge with one another or with larger development of the mobile market, as well as on their products operators. Rudiantara considers that by 2019 Indonesia should and tari¦s.87 have only four mobile network operators.86 To encourage consolidation, the sector would benefit from Earlier in 2013/14, XL Axiata completed its acquisition of smaller having more comprehensive merger and acquisition guidelines, rival Axis. The MCIT approved the merger in November 2013. which would help provide clarity on the prescribed assessment As required by Indonesian law, XL had to return Axis’ spectrum process, treatment of spectrum assets post-merger and range allocations in the 2.1 GHz bands. The MCIT allowed the retention of possible remedies considered.

A GSMA assessment of the impact of the 2012 merger between However, while policymakers typically establish regulatory Hutchison and Orange in Austria on network quality and frameworks to facilitate competition, protect consumers and coverage found that the combination intensified competition encourage innovation in the telecoms industry, they may not in quality-related aspects and had a significant positive impact always appreciate the sector’s role in the wider digital economy. for consumers.88 Hutchison was able to accelerate population Telecoms markets have become increasingly integrated with coverage of its 4G network by 20–30 percentage points as a adjacent markets; for example, the spillover ešect of economic result of the merger, with this taking ešect after two years. activity in the mobile ecosystem indirectly generates employment Hutchison’s 4G network quality also increased significantly, with by device manufacturers, distribution firms and infrastructure 4G download and upload speeds increasing by 7 Mbps and 3 vendors. Service providers from dišerent sectors also increasingly Mbps, respectively, two years after the merger. The study also co-operate and compete with each other, which can make long- found positive ešects on the quality of mobile networks in the standing market definitions less relevant, and in some cases Austrian market as a whole, with 4G download and upload obsolete.89 speeds increasing by more than 13 Mbps and 4 Mbps in 2013 and 2014, respectively, after the merger, and 3G download speeds increasing by 1.5 Mbps after 2014.

85. For more information, see Competition Policy in the Digital Age: Case Studies from Asia and Sub-Saharan Africa, GSMA, 2016 86. “Build Network or Lose License, Indonesia Telecom Minister Says”, Bloomberg, January 2016 87. Assessing the case for in-country mobile consolidation in emerging markets, GSMA, 2015 88. Assessing the impact of mobile consolidation on innovation and quality: An evaluation of the Hutchison/Orange merger in Austria, GSMA, 2017 89. Competition Policy in the Digital Age Case Studies from Asia and Sub-Saharan Africa, GSMA, 2016

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Consolidation has frequently been looked at with suspicion, expensive and risks distracting management, a lack of certainty with authorities concerned that mergers could lead to higher around ownership of the main asset can make it di£cult for prices for consumers. Accordingly, their merger reviews have mobile operators to justify such a project at the outset. Although tended to focus more on short-term price distortions and less spectrum reassignment may be appropriate in some cases, such on quality, innovation and investment. However, the mobile action must be considered carefully as it has the potential to industry experiences frequent technology cycles, with each undo some of the benefits resulting from mergers. new generation of technology delivering a significant increase in speed and capacity, supporting the development of a digital To that end, spectrum reallocation, in particular that which aims society. Dynamic e£ciencies then drive reductions in the costs to ensure symmetric assignments between operators, could of delivering services, which in turn lead to lower prices and undermine the investment incentives of the merging parties and increases in demand and volumes. With the backdrop of an thereby lead to worse consumer outcomes. In contrast, a merger ešective application of competition law, merger assessments that provides additional spectrum may enable the enlarged entity should avoid myopia and preconceived ideas of market power, to refarm spectrum for a new use, such as delivering LTE at the and consider longer term abilities and incentives to invest. best possible speeds or with greater capacity. Evidence shows that e£ciency ešects can be significant, but they can take time to benefit consumers directly. Further, spectrum divestment is a time-consuming process that could also lead to the under-utilisation of a scarce resource. Consumer benefits could also be reduced if spectrum is allocated The importance of asset certainty to a new entrant that has no existing customer base and may not It is essential that two parties exploring a combination are necessarily provide an ešective competitive force in the market. aware of the consequences for their spectrum assets if a merger Should Indonesian mobile operators consider merging with or is to proceed with certainty. It can often be the case that the acquiring rivals in the future, the KPPU should complete a full bulk of the value in some of these potential transactions is analysis of whether or not a spectrum divestment is in the overall the amalgamation of the operators’ spectrum holdings. As interests of society and the likely ešects of the divestment on undertaking an acquisition or a merger project is typically competition and the e£cient use of spectrum.

7.3 Other regulatory obligations to support the digital economy

Policymakers across Asia Pacific have devised regulations that A further means of expanding mobile broadband coverage aim to create incentives for, or sometimes oblige, market players in Indonesia and supporting the digital economy could be to to invest in unprofitable areas. A typical solution is a universal introduce a ‘pay or play’ incentive for universal service fund (USF) service fund (USF), which functions by collecting levies on contribution. Since 2009, the annual contribution to the USF has mobile operators and using those funds to finance connectivity been calculated at 1.25% of each licence holder’s gross revenue.91 initiatives determined by the government. However, while no Under a pay or play arrangement, mobile operators would be doubt well-intentioned, inadequate governance, a lack of political allowed to withhold their USF contributions so long as they independence, or ill-conceived objectives can impair a USF’s commit to, for example, building a number of sites in a certain ešectiveness.90 area – in other words, they opt to ‘play’ rather than ‘pay’.

90. Enabling Rural Coverage: Regulatory and policy recommendations to foster mobile broadband coverage in developing countries, GSMA, 2018 91. Payments may be made quarterly, bi-annually or annually via a mechanism of self-assessment based on the operator’s annual financial statements.

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7.4 Enhancing connectivity and inclusion through the appropriate tax system

Despite the positive contribution of the mobile sector to revenue, mobile connectivity in the country is higher because socioeconomic growth, countries do not always align their sector- the operators have more funds to spend on investment in better specific taxes with best-practice principles of taxation, thereby infrastructure, which in turn promotes increased penetration of distorting the industry’s continued development.92 Sector- mobile services. A recent survey by the Asia Internet Coalition specific taxes on the mobile economy have a negative impact similarly concluded that adopting the correct tax approach acts on the industry’s consumers and its operators – for example, by as an important policy lever for a country to become a digital widening the digital divide and causing exclusion as services nation.93 become too expensive for some lower income users. The growth in digital services provided by OTT service and In Indonesia, sector-specific taxes account for well over half of the content94 providers has challenged analogue tax systems. The mobile sector’s total tax payments, with the mobile industry and local impact of OTTs typically means governments must try to its consumers contributing nearly a quarter of market revenues collect taxes from companies that do not have a legal presence in tax. In turn, the mobile sector’s contribution to government or facilities in the country, but instead sell or provide intangible tax revenue in 2014 was almost double the industry’s share of cross-border services. This nebulous jurisdiction of many OTTs GDP. Strict regimes that divert large proportions of revenue makes it di£cult for governments to raise taxes such as VAT and from operators to governments can have a negative impact on creates a tax asymmetry compared to taxation on local firms connectivity. When operators retain a higher percentage of their providing similar services.

92. Taxing mobile connectivity in Asia Pacific: A review of mobile sector taxation and its impact on digital inclusion, GSMA, 2018 93. 83% of executives in 300 digital start-ups, investment firms and multinational businesses across 11 Asia Pacific countries expressed this position. 94. In broadcasting, OTT content refers to the delivery of audio, video and other media over the internet without the involvement of a multiple-system operator in the control or distribution of the content. The internet provider may be aware of the contents of the Internet Protocol packets but is not responsible for, nor able to control, the viewing abilities, copyright and/or other redistribution of the content.

42 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Over the past three years, five countries95 in Asia Pacific have country, which would consequently necessitate the payment of begun applying local taxes on OTT and e-commerce services. local taxes, including corporation tax. It is likely that the regulation Indonesia has been considering imposing regulation on OTT would also require OTTs to comply with legislation around trading providers, such as Whatsapp, Skype and WeChat, to create a level standards and consumer protection, and may include restrictions playing field between foreign online messaging providers and on what content can be delivered via OTT services, possibly domestic operators, under the supervision of the MCIT.96 The new requiring ISPs to filter out any content not favoured by the MCIT, rules would require OTTs to establish a permanent presence in the such as pornographic or terrorism-related material.

7.5 Identity as a foundational element of a digital economy

A digital identity is a collection of electronically captured and to accelerate the growth of e-commerce in Indonesia,98 with a stored (biographic and biometric) identity attributes that vision of becoming the largest digital economy in South-East uniquely describe a person within a given context. It provides Asia by 2020, with an e-commerce sector worth $130 billion a potentially transformative solution to the global identity (IDR180 trillion).99 The National E-commerce Roadmap sets out challenge but also represents a cornerstone of the development 31 initiatives across seven dišerent sectors, namely education of a digital society, enabling electronic transactions and delivering and human resources, funding, tax, consumer protection, benefits to governments, citizens and businesses.97 cybersecurity, communications infrastructure and logistics.100

Beyond utilising public services, a secure digital identity is Digital identification can have a have a profound ešect on essential for individuals to participate in a full digital lifestyle. This financial inclusion by overcoming physical barriers and creating concept centres on the use of smart devices to access a range opportunities for citizens to access various essential services, of locally relevant content and services. The combination of such as savings, credit and insurance, at a cost ašordable to connected devices, such as mobile phones and wearables, with them. With widely available access to 3G mobile connectivity and digital identification is enabling people to transform the way they an improving picture in terms of access to 4G, combining digital work, communicate and play. Indonesia has one of the youngest, identity with mobile technology has the scope to change the largest and arguably most digitally savvy populations in the landscape of financial inclusion in Indonesia. It is important that world. Online news consumption and social media use have been Indonesia refocuses ešorts on the e-KTP project and accelerates growing rapidly in recent years; more tweets were sent from the registration and issuance to equip all citizens with a digital ID country’s capital, Jakarta, in 2014 than from any other city in the for passports, driving licences, SIM card registration, taxpayer world, accounting for 2.4% of the global total. identification numbers, insurance policies, land ownership certificates and other identity documents. Like connectivity, digital identity is also an enabler of commerce and payments over digital channels, which has a positive impact on the online economy and cross-border trade. In August 2017, the government of Indonesia launched a Roadmap for the National Electronic Commerce System for 2017–2019, which aims

95. Australia, India, Japan, New Zealand and South Korea. 96. “Minister says Indonesian govt. to publish OTT regulation ‘this year’”, Telegeography, October 2017 97. Digital identities: advancing digital societies in Asia Pacific, GSMA, 2018 98. “Government Releases E-Commerce Roadmap”, Amcham Indonesia, August 2017 99. “Digital Economy of Indonesia”, Kominfo, October 2016 100. “Strengthen Momentum Indonesia as The Digital Energy of Asia” Indonesia E-commerce Summit and Expo, April 2017

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7.6 A forward-looking regulatory environment for the data economy

The experiences of dišerent markets around the world show reliable and robust broadband infrastructure. However, just as that digital economies can take root and grow under all kinds important are digitally capable consumers, digitally competent of circumstances if several basic factors are in place. A key and engaged companies and a labour pool with the requisite foundational element of any digital economy is high-speed, digital skills.

FIGURE 14: PRIMARY ENABLERS OF A DIGITAL ECONOMY

INFRASTRUCTURE DIGITAL SAFETY LOCALLY RELEVANT PEOPLE ABLE DIGITALISING AND SECURITY CONTENT AND TO COPE WITH COMPANIES SERVICES DIGITALISATION Reliable, fast Trust in digital Broad and proactive and ubiquitous systems, no data Broad choice of local Broad digital literacy adoption of telecommunication misuse language and locally digitalisation by local networks relevant digital content Strong technical, companies Well-functioning and services interpersonal Supporting physical cybersecurity and higher order Government and public infrastructure (energy, systems cognitive skills support for company logistics etc.) digitalisation

Source: GSMA

A holistic policy framework that reflects the changing digital solely on price but also consider other dynamic ešects on quality landscape while reducing costs and barriers to network of service and performance. A better balance is required between deployment will deliver the best outcomes for society and the telecoms sector regulation and competition law, with the latter economy. augmented by better procedures and faster decision making.101

A forward-looking regulatory environment must promote Regulatory frameworks for privacy are critical to facilitate cross- market dynamism, competition and consumer welfare. Policy border data flows in Indonesia. There is much to be gained; for objectives are best met by focusing on the services delivered example, the expected productivity improvements from digitising to consumers, rather than the type of company or technology processes and using cross-border data flows in Indonesia’s that delivers them. Prescriptive (ex-ante) regulations should be manufacturing and retail sectors is estimated to lead to an ENCOURAGE NETWORK ADJUST REGULATION TO PROMOTE DIGITAL DEMONSTRATE DIGITAL replaced, INVESTMENTwhere possible, with measurable,A DIGITALISED performance-based WORLD additionalECONOMIES $34.4 billion and $24.5 billion contributionLEADERSHIP to GDP, approaches. respectively, by 2025.102 The government has enacted various Implement broadband policy Adopt functionally based laws whichSupport relate data to safety data privacy in Encouragea number ofuse specific of digital areas, IDs In particular,with competition clear goals policy is an ešectiveregulation and versatile but thereand are securitysome gaps. The government should therefore Support digital financial tool toSupport ensure infrastructurethe proper functioning Preferof markets, ex-post and approaches should developPush and digital implement literacy a privacy frameworkinfrastructure that can ešectively be updated tobuild-out reflect a number of characteristics(over ex-ante of prescriptive the digital protectand the life-long data of learning citizens, while also allowing data to flow economy. For example, control of data can conferregulation) a competitive across borders in ways that support Introducetrade and and innovation. push digital Apply investment-friendly Encourage digitalisation government services advantage,spectrum and digital policy market assessmentsApply regulatory should not consistency focus of companies throughout the ecosystem

101. Resetting Competition Policy Frameworks for the Digital Ecosystem, GSMA, 2016 102. Unlocking Indonesia’s Digital Opportunity, McKinsey & Company, 2016

44 INFRASTRUCTURE DIGITAL SAFETY LOCALLY RELEVANT PEOPLE ABLE DIGITALISING AND SECURITY CONTENT AND TO COPE WITH COMPANIES ACCELERATING INDONESIA’SSERVICES DIGITAL ECONOMY: ASSIGNINGDIGITALISATION THE 700 MHZ BAND TO MOBILE BROADBAND Reliable, fast Trust in digital Broad and proactive and ubiquitous systems, no data Broad choice of local Broad digital literacy adoption of telecommunication misuse language and locally digitalisation by local networks relevant digital content Strong technical, companies Well-functioning and services interpersonal Supporting physical cybersecurity and higher order Government and public infrastructure (energy, systems cognitive skills support for company The ruleslogistics designed etc.) to protect society should be applied evenly and responsibility to figure out what works best.digitalisation Being too across the digital economy and not be so prescriptive that prescriptive in regulation and enforcement can get in the way of opportunities to innovate are blocked. In the dynamic digital the best outcomes for consumers. environment, industry and businesses need the freedom

FIGURE 15: KEY POLICY LEVERS TO PROMOTE WIDESPREAD DIGITAL BENEFITS AND INCLUSION

ENCOURAGE NETWORK ADJUST REGULATION TO PROMOTE DIGITAL DEMONSTRATE DIGITAL INVESTMENT A DIGITALISED WORLD ECONOMIES LEADERSHIP

Implement broadband policy Adopt functionally based Support data safety Encourage use of digital IDs with clear goals regulation and security Support digital financial Support infrastructure Prefer ex-post approaches Push digital literacy infrastructure build-out (over ex-ante prescriptive and life-long learning regulation) Introduce and push digital Apply investment-friendly Encourage digitalisation government services spectrum policy Apply regulatory consistency of companies throughout the ecosystem

Source: GSMA

45 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

8. Appendix

8.1 Methodology for the estimation of benefits of assigning 700 MHz to mobile broadband

Our economic impact model comprises two main blocks: Methodology: high-level base stations model A large part of the cost of providing mobile services is 1. High-level base stations model: Based on a number of determined by the infrastructure costs incurred in setting up technical assumptions, we estimated the optimum number base stations and renting or building sites. The number of base of base stations serving the rural Indonesia population stations required depends on the local population’s demand for according to the amount of low-band spectrum available mobile data. In our model, we estimate this using the following: for mobile broadband. We changed the input to this model to estimate the new optimum number of base stations n forecasts of data use per subscriber – Cisco publishes when 90 MHz of 700 MHz spectrum is made available from estimates103 for Indonesia which we have used for rural the vacation of broadcasters from the spectrum bands. Indonesian consumers as well. We assume straight-line growth in data tra£c use from the end of the Cisco forecasts 2. Economic impact model: The change in the number of in 2021 base stations led to a theoretical change in the operating costs for the mobile operators in rural Indonesia. We n population growth – using UN population (World Population assume that operators pass these cost savings to Prospects) forecasts consumers in the form of lower prices. With this model, we n mobile broadband subscriber growth: GSMA Intelligence then estimated: estimates for Indonesia until 2025, with 2% annual growth a. the aggregate gain in economic value added for the assumed thereafter. mobile ecosystem as a result of a higher number of mobile broadband users Using this data, we estimate that data tra£c growth in rural Indonesia will be 8× in 2025 compared to 2018 and 13× in 2030 b. the gain for the wider economy through multiplier compared to 2018. ešects as a result of the expanded mobile ecosystem c. the gain in economic productivity from the higher The number of base stations required to meet the demand for number of mobile broadband users this data depends on a number of technical factors. These base stations must meet the requirements of demand at the busiest d. the gain in economic productivity from the improved time of day to ensure that data use is not significantly impaired at speeds (capacity) enjoyed by mobile broadband users. these times. We estimated the optimum number of base stations using the same methodology employed in a previous GSMA All impacts in this model are presented in 2017 prices. Future report:104 values are also discounted by a social discount rate of 3% per annum, to account for society’s preference for consumption Optimum number of BTS = number of distinct networks x busy today versus consumption tomorrow. hour downlink tra£c / [downlink spectrum holdings x spectral e£ciency x number of sectors x tra£c distribution per BTS x maximum allowed load per BTS]

(For which busy hour downlink tra£c = [average monthly tra£c (bits) / seconds per month] x peak hour share x downlink share) The assumptions used for these factors are set out in Table 2.

103. Visual Networking Index: Global Mobile Data Tra±c Forecast Update, 2016–2021, Cisco 104. Assessing the socio-economic impact of identifying the L Band for IMT services, 2014, BlueNote for the GSMA. The modelling in this report was informed by optimal models set out in Mobile broadband with HSPA and LTE – capacity and cost aspects, Nokia Siemens Networks, 2010

46 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

TABLE 2: ASSUMPTIONS USED FOR OPTIMAL BASE STATION MODELLING

Assumption Value Source

Supply factors

Total paired spectrum to be allocated: 700 MHz 2 x 45 MHz Input assumption

Total paired spectrum allocated: 850/900 MHz 2 x 46 MHz Research

Share of 900 MHz spectrum used for 2G services 50% Assumption based on minimum spectrum required for mobile broadband

Spectral e•ciency, downlink, 3G – bps/Hz/sect. 1.50 4G Capacity Gains, Final Report, Real Wireless for Ofcom, 2011

Spectral e•ciency, downlink, 4G – bps/Hz/sect. 2.40 LTE to 5G: Cellular and Broadband Innovation, 5G Americas/Rysavy 2017 Number of sectors per BTS 2.5 Previous GSMA modelling work for rural areas Tra•c distribution per BTS 0.25 Industry assumption: 20% of cells carry 80% of tra•c Maximum allowed load per BTS 70% Mobile broadband with HSPA and LTE – capacity and cost aspects, Nokia Siemens Networks, 2010 (assumed 50–70%) Number of distinct networks 2 Assumes that on average two distinct networks will be built in rural areas in the absence of active network sharing Demand factors Peak hour share of total tra•c 7% Mobile broadband with HSPA and LTE – capacity and cost aspects, Nokia Siemens Networks, 2010 Downlink share of total throughput 77% Mobile broadband with HSPA and LTE – capacity and cost aspects, Nokia Siemens Networks, 2010

Source: GSMA Intelligence

In order to use the optimal base station approach, we note three 3. As a result of this final assumption, we assume a limited fundamental assumptions: ability for operators to densify networks – the majority of 1. We assume that rural Indonesia is poorly served by base all new base stations in this model are replacements for stations using 1800 MHz and 2.1 GHz for mobile broadband. current 2G base stations. We therefore applied a cap on the This is because of the propagation characteristics for these number of base stations built in rural Indonesia. We assume bands, where signals would struggle to reach a wide range of this number to be 65,000 per distinct network, partly based 105 the population in sparsely populated rural areas. We therefore on previous modelling undertaken for the GSMA, which assume that rural Indonesians are broadly served by sub-1 estimated 25,000 sites for the last 30% of the population GHz spectrum: a portion of the 2 x 46MHz of spectrum in the and a base station per site assumption of two; as well as a 850 MHz and 900 MHz bands that is not used for 2G services. densification allowance of +30% of the current number of base stations. 2. We assume that the new 700 MHz spectrum would only be used on sites already using 850/900 MHz given the similar propagation characteristics of the spectrum at those We then calculated the cost of the base stations. We assumed bands. There would be a small gain in population coverage a capital cost of $90,000 per base station based on previous from using 700 MHz over 850/900 MHz, but we did not research, and an e£ciency saving of 4% every year, reflecting model this. In addition, given the existence of 2G base the improvements in manufacturing of network equipment. stations at these locations, we also did not model operating We reflected these costs as an annual cost. This can either be expenditure changes as we could not be certain about interpreted as the depreciation of the capital expenditure plus whether new mobile broadband base stations are additional financing costs in any given year or the theoretical annual rental or replacement – and therefore assume all new base stations of the equipment. Both are based on an eight-year assumed to be replacements. We consider that these two assumptions asset life and a 12% cost of capital. make our estimates conservative.

105. GSMA commissioned analysis from Coleago to understand the costs of rural infrastructure in Indonesia.

47 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

Our counterfactual cost estimate was based on the continued I Distributors and retailers: The new smartphones use of 50% of the 2 x 46MHz of 850/900 MHz spectrum to produced above are distributed and sold to new deliver mobile broadband using 3G technology. Our scenario cost subscribers through retail outlets. We estimated value estimate was based on the counterfactual spectrum use plus added by distributors and retailers by estimating the gross the use of 2 x 45MHz of 700 MHz to deliver mobile broadband margin on the smartphones and removed the proportion using 4G technology. The greater spectral capacity and e£ciency that would be sold directly by mobile operators. delivered cost savings in our model that fed through to the I Content and application providers: The new mobile economic impact model. broadband users would then use more content and purchase add-on services as a result of their new connections. We estimated value added by these Methodology: economic impact model providers by estimating the gross margin of the content We estimate the economic impact of allocating 700 MHz to and application production based on the average content mobile broadband on the back of the cost savings estimate. revenue per subscriber.

Impact on the mobile ecosystem All gross margins were informed by our research into benchmark We assumed that mobile operators pass on the cost savings company financial statements. estimated in the spectrum e£ciency model above to consumers. Cost savings are passed on in the form of prices being lower Impact on the wider economy than in the base case. We assumed a natural annual decrease in In addition to these direct impacts on the mobile ecosystem, price per GB in the counterfactual of 4%, to match the natural we estimated the knock-on impacts to the wider economy. We reduction in the capital costs of network equipment. Consumers estimated a multiplier based on input-output table produced by in rural Indonesia will be more attracted to mobile broadband the OECD for the aggregate of non-OECD countries. We removed and more will take up the service. We apply a price elasticity of the interactions between the ecosystem and telecommunications, demand of –0.4, which is based on the lower end of estimates which resulted in a multiplier of the entire ecosystem on the from our literature review. The resulting accelerated take-up of rest of the economy of 0.2. These indirect impacts therefore mobile broadband represents an expansion in the operations and represent 20% of the direct economic value added by the mobile gross value added for the mobile ecosystem. ecosystem.

We report on the economic contribution of various parts of the Mobile broadband user productivity impacts mobile ecosystem in GSMA Mobile Economy reports.106 These The use of 3G and 4G technology allows workers and firms industries are directly ašected by the change in the number of to use mobile data and internet services (improving access to mobile broadband users. We set out how they are ašected below: market information, for example). The impact of mobile internet I Mobile operators: The net value added impact of mobile is particularly important in developing rural areas where a operators is determined by the gross margin of mobile significant proportion of the population can only access internet operators applied to the increase in revenue from new via a mobile platform. mobile broadband subscribers.

I Handset manufacturers: New mobile broadband subscribers require smartphones. We estimated value added by handset manufacturers by estimating the gross margin on new smartphone production. We adjusted to ensure that we only included domestic production (imports were excluded).

106. The Mobile Economy 2018, GSMA, 2018

48 ACCELERATING INDONESIA’S DIGITAL ECONOMY: ASSIGNING THE 700 MHZ BAND TO MOBILE BROADBAND

There is a significant body of research that establishes the link Capacity improvement productivity impacts between ICT and growth, a subset of which focused on mobile In addition to access enjoyed by the new consumers, all users technology specifically as well as the internet. These studies are gain in productivity from improved speeds as a result of the typically based on econometric and regression-based analysis improved spectrum capacity and e£ciency. Again, a range and try to isolate the ešect of mobile usage as a factor that of recent studies have looked at the relationship between drives GDP. There are a large number of studies but only very few broadband speeds and economic growth. are robust. In our modelling we only use the results/parameters I Impact of broadband speed on economic outputs: an from those studies we judge to be su£ciently robust. A selection empirical study of OECD countries (Kongaut, Bohlin, 2014) of those includes: I The benefits of ultrafast broadband deployment (WIK- I Broadband infrastructure and economic growth (Czernich, Consult / Ofcom, 2018) Falck, Kretschmer, Woessmann, 2009) I Does broadband speed really matter for driving economic I The economic impact of broadband on growth: a growth? Investigating OECD countries (Rohman, Bohlin, simultaneous approach (Koutrompis, 2009) 2012) I Economic impacts of broadband (Quiang, Rossotto, 2009) I Economic impact of broadband internet service / I Mobile telecommunications and the impact on economic Impacto económico del servicio de internet banda ancha development (Gruber, Koutroumpis) (Department for Planning / Departamento Nacional de Planeación, Colombia, 2017) I Does broadband internet access actually spur economic growth? (Scott, 2012) I Broadband access in the EU: an assessment of future economic benefits (Gruber, Hätönen, Koutroumpis, 2013). I What is the impact of mobile telephony on economic growth? (GSMA, Deloitte, 2012) We estimated the improvement in speed by calculating the I Unlocking the potential of the Internet of Things percentage change in the busy hour capacity resulting from the (McKinsey, 2015) allocation of 700 MHz spectrum compared to the counterfactual. We then weighted this improvement by the population ašected We draw on this literature to estimate the productivity benefits (i.e. the rural population) as we assume no impact on the urban to Indonesia as a result of more rural citizens being able to population108 between the scenario and the counterfactual. access the internet using their mobile. The focus here is on new access to 3G and 4G technologies. We used a more conservative Based on a conservative assumption from the review of the estimate of this relationship with economic growth: based on literature above (from Rohman and Bohlin, 2012), we multiplied GSMA (2012),107 an increase in mobile broadband penetration the percentage point change in capacity by 0.003% and the GDP was estimated to improve GDP by 1.5% in developing countries. for that year to calculate the GDP impact of the capacity increase We apply this estimate to the growth in mobile broadband for Indonesia. consumers in rural Indonesia to estimate the overall productivity impact.

107. What is the impact of mobile telephony on economic growth?, GSMA, Deloitte, Cisco, 2012 108. While the allocation of 700 MHz to mobile broadband will have a positive impact in urban areas, this population is already well served by densely built 4G networks using 1800 MHz and 2.1 GHz spectrum. The step change is therefore likely to be di–erent in nature to the impact on the rural population, with quality impacts (e.g. greater indoor coverage) likely to dominate benefits.

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